Thursday, August 13, 2020

Rwanda maintains rate as inflation seen decelerating

    Rwanda's central bank left its benchmark interest rate steady at 4.50 percent, saying it was maintaining an accommodative monetary policy stance to support commercial banks to continue financing businesses and households considering that inflation is projected to decelerate in the last quarter of this year.
    The National Bank of Rwanda (NBR) has only cut its rate twice since December 2017, first in May 2019 and then in April this year, both times by 50 basis points.
     In a statement following a quarterly meeting by its monetary policy committee on Aug. 12, the bank noted economic growth in the first quarter eased to 3.6 percent compared with 6.1 percent in the first quarter of 2019 and 8.4 percent in the fourth quarter of 2019, and high-frequency indicators point to a negative impact of COVID-19 pandemic in the second quarter.
     NBR's composite index of economic activities (CIEA) fell 8.8 percent in the second quarter compared with a rise of 16.5 percent in the same quarter last year but then rose 8.4 percent in June as the economy opens up and economic activities begin to pick up.
     The economy is expected to improve in the second half of this year, supported by a further opening of Rwanda's and other economies across the world, the central bank said.
     Rwanda's inflation rate averaged 8.7 percent in the second quarter, up from 8.2 percent in the first quarter, due to higher public transport prices.
     But NBR said headline inflation is projected to start slowing to below its target of 5.0 percent in the last quarter of 2020 but still raised its forecast for average inflation this year to 6.9 percent from 6.0 percent projected in April due to the rise in transport prices. 
     The exchange rate of Rwanda's franc has depreciated by 2.3 percent against the U.S. dollar by the end of July, slightly down from a 2.6 percent decline in the same period last year and NBR expects the exchange rate to remain stable, with adequate reserves covering 6.3 months of imports.
     In June the International Monetary Fund's executive board approved the disbursement of another $111.06 million under its rapid credit facility to Rwanda, the IMF's second emergency disbursement following $109.4 million in April.
     In its statement, the IMF said Rwanda's economic outlook had worsened since April and lowered its growth forecast for 2020 to 2.0 percent from an earlier 5.1 percent "due to the deepening of the COVID-19 impact."
 

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