It is the first rate cut by the National Bank of Rwanda (BNR) since December 2017.
"Going forward, aggregate demand in 2019 is expected to improve, supported by a more accommodative monetary policy and increased fiscal stimulus," John Rwangombwa, BNR governor said, adding global economic performance is projected to slow and commodity prices to decline this year against a backdrop of uncertainties around Brexit and trade tensions.
Rwanda's inflation rate has fallen sharply since topping 13 percent in February 2017 and has been below BNR's 5.0 percent target since November 2017.
After three months of deflation between September and November 2018, inflation has begun to rise and headline inflation hit 1.1 percent in March from 0.8 percent in February as an easing of food deflation outweighed the drop in energy inflation.
"The improvement in domestic demand supported by the new monetary policy stance will drive inflation towards 3.0 percent in 2019, from 1.4 percent recorded in 2018," BNR said.
Outstanding credit to the private sector grew 16.2 percent in the first quarter of this year, up from 7.3 percent in the year-ago quarter, and BNR expects this trend to continue in 2019.
Supported by a 6 percent rise in agricultural output, a 9 percent rise in services and a 10 percent rise in industry output in 2018, Rwanda's economy expanded 8.6 percent.
BNR confirmed its forecast from February for growth this year of 7.8 percent.
Rwanda's franc has been steadily depreciating against the U.S. dollar in the last decade and eased 4 percent in 2018.
In the first quarter of this year, BNR said depreciation of the franc was moderate and consistent with its initial projection of 5.0 percent for 2019, up from last year due to a wider trade deficit from higher imports from ongoing infrastructure projects and slower global growth.
"However, the foreign exchange market will remain stable, with adequate foreign exchange reserves to serve as a buffer against external shocks," BNR said.
In March the International Monetary Fund said Rwanda's external balances was continuing to improve with international reserves above 4.5 months of next year's goods and services import bill.
Following the conclusion of a 5-year support program in 2018, IMF staff and Rwanda's government have reached preliminary agreement on policies that could constitute the basis for a new program under the IMF's new Policy Coordination Instrument.
Following the visit by IMF staff in March, it forecast average inflation this year of 3.5 percent and economic growth of 7.8 percent this year, rising to around 8 percent in the medium term, bolstered by the government's continued implementation of its National Strategy for Transformation, which has already resulted in strong investment inflows, diversified exports and a more resilient agriculture.
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