Rwanda's central bank maintained its policy stance, saying the economy should continue to perform well while depreciation pressures on the Rwandan franc have eased.
The National Bank of Rwanda (BNR), which cut its rate by 25 basis points in December in the first easing since June 2014, added that keeping its benchmark KKR rate at 6.25 percent for the second quarter of this year would "cement the outcomes of its previous decisions."
Rwanda's economy grew by 5.9 percent in 2016 and should continue to perform well in the first quarter of this year based on a 5.8 percent rise in the composite index of economic activities in the first two months of the year with total turnover up 15.9 percent in the same period.
Headline inflation, according to the BNR, rose to 8.1 percent in February from 7.3 percent in December and is expected to be 7 percent by December this year, with upward pressure from food prices due to drought and higher transport costs.
Helped by an improved trade balance from a recovery in commodity prices, along with the completion of some big projects, the central bank noted a slower depreciation of the franc, with deprecation forecast of around 4 percent by December.
The franc was quoted at 824 to the U.S. dollar today, down 1.5 percent this year. The BNR said the franc had depreciated by 0.7 percent as of March 24 compared with depreciation of 2.7 percent in the same 2016 period.
Last year Rwanda's trade deficit narrowed by 5.9 percent to US$1.650 billion as formal imports fell by 2.7 percent while formal exports grew by 7.1 percent.
A similar trend has also been seen in the first two months of this year, with the trade deficit declining by 25.2 pendant to $221.88 billion.
In the combined statement by the central bank's monetary policy committee and its financial stability committee, the bank said the financial sector was sufficiently solvent, with the capital adequacy ratio of banks and microfinance sectors at 21.8 percent and 35.2 percent, respectively, above the BNR's minimum requirement of 15 percent.
However, the asset quality of financial institutions had deteriorated, with non-performing loans (NPL) up to 7.5 percent in December 2016 from 6.2 percent in December 2015 and the NPLs of the microfinance sector up to 9.0 percent from 7.9 percent.
The BNR targets reducing NPLs to below 5 percent.