Thursday, November 12, 2020

Rwanda holds rate, sees economic recovery, lower prices

      Rwanda's central bank left its Central Bank Rate (CBR) steady at 4.5 percent, saying it was maintaining an accommodative policy stance while economic growth in the third quarter is expected to reflect the ongoing economic recovery and inflation to ease from the fourth quarter.
     The National Bank of Rwanda (NBR), which has only cut its rate once this year, said high-frequency data point to an improvement in the economy in the third quarter after gross domestic product contracted 12.4 percent year-on-year in the second quarter.
    Compared with the first quarter, GDP in the second quarter shrank 10.2 percent, deeper than the first quarter contraction of 4.2 percent due to the COVID-10 induced shutdown of the economy.
     But the bank's Composite Index of Economic Activities (CIEA) rose 6.3 percent in the third quarter compared with a 9.1 percent fall in the second  quarter, BNR said, as increased government demand for construction materials to build schools, roads and health facilities boosted industry sectors.
     "Though COVID-19 related risks continue to weigh on the performance of the services sectors, the contraction in the sector's turnovers eased in 2020Q3, after a deeper decline recorded in the previous quarter," the central bank said.
     In late October the International Monetary Fund (IMF) also said Rwanda's economy was showing signs of recovery following the second quarter contraction and forecast a 0.2 percent fall in 2020 GDP followed by a rebound and growth of 5.7 percent in 2021.
     In April BNR cut its key interest rate by 50 basis points, the same amount as in May 2019, extending the easing cycle in place since June 2013. Since then the rate has been cut by 300 basis points.
     An rise in regulated prices for transport has pushed up inflation in Rwanda to above the central bank's upper bound but BNR said receding inflationary pressures, both from subdued domestic and global demand, energy prices and a downward revision of transport prices as of October, should lead to lower inflation in the fourth quarter of 2020.
     In October Rwanda's inflation rate eased to 9.3 percent in October from 10.8 percent in September and BNR forecast headline inflation would be around 6 percent in the fourth quarter, down from 9.0 percent in the third quarter.
     In January 2019 BNR began using prices instead of money supply to ensure price stability and has targeted an inflation midpoint of 5.0 percent within a range of plus/minus 3.0 percentage points.
    "Baseline projections of inflation point to further easing of core inflationary pressures in 2021, resulting from subdued domestic and global demand, coupled with the effect of the removal of the transport shock," BNR said, projecting that inflation would be below its 5.0 percent benchmark next year.
      Rwanda's franc was trading at 978.5 to the U.S. dollar today, down 4 percent this year, and in the first 10 months of the year, the franc was down 4.4 percent, slightly higher than the 4.0 percent in the same period in 2019, BNR said, adding the foreign exchange market was expected to remain stable, with adequate reserves that cover 5.8 months of imports as of end-October.


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