Wednesday, March 28, 2018

Rwanda maintains key rate as inflation seen below 5%

      Rwanda's central bank kept its benchmark repo rate at 5.5 percent to encourage the banking sector to continue financing the economy and "cement the outcomes of its previous decisions" as inflation is not expected to exceed the 5.0 objective this year and pressures on the Rwandan Franc have remained subdued.
      The National Bank of Rwanda (BNR) cut its key repo rate by 50 basis points in December 2017, its third rate cut since it began an easing cycle in December 2016 with cuts totaling 100 basis points.
      Rwanda's economy outpaced expectations last year and inflation has decelerated sharply, easing to minus 1.3 percent in February from 0.1 percent in January and 8.1 percent in February 2017 on ample food supply.
       "In line with good weather conditions and exchange rate stability, headline inflation is estimated to evolve around 1.4 percent in 2018Q1 and is projected at around 2.0 percent in 2018Q2," the bank's monetary policy committee said.
       The economy grew by 6.1 percent in 2017, above 5.2 percent initially projected, and above 6.0 pectin 2016, mainly due to good output by services and agriculture.
      "The economy continued to perform well in 2018Q1 as indicated by the high frequency indicators of economic activities," BNR added.
      Earlier this month the central bank's governor, John Rwangombwa, forecast growth this year of 6.5 percent as good climate conditions should help farmers.
      Rwanda's franc has been depreciating steadily in the last decade and fell by 0.8 percent against the U.S. dollar as of March 20 from December 2017, the bank said, projecting depreciation of 4.5 percent by end-December 2018.
      Today the franc was trading at 851.4 to the dollar, down 0.9 percent this year.
      In the accompanying statement by the Financial Stability Committee, BNR said the assets of the financial sector were continuing to increase, the financial sector remains well capitalized, there is sufficient liquidity and the ratio of non-performing loans of banks fell to 7.6 percent in December from 8.2 percent in June 2017.
      Last week the International Monetary Fund (IMF) and Rwanda's government reach preliminary agreement on policies that support the completion of the ninth review of its program, with the IMF forecasting growth this year and 2019 of 7-8 percent while inflation should stay within the target range.
      The IMF said Rwanda's economy was rebounding and external imbalances had continued to decline on the basis of exchange rate adjustments and other policies that have helped improve the competitiveness and diversity the country's production and exports.
        With foreign exchange reserves accumulating faster than anticipated, the pressure on the Franc has abated and easier monetary policy has helped bolster the private sector's use of bank credit, which rose by just over 13 percent in January year-on-year.
     "Continued exchange rate flexibility should ensure that Rwanda's exports remain competitive and the ample availability of foreign exchange in the economy," the IMF said.
       And while the central bank is set to keep its policy stance broadly neutral in the near term, it is implementing policies that "move to a more forward-looking interest rate-based policy framework while carefully monitoring financial sector developments."



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