Monday, February 22, 2021

Rwanda keeps easy policy stance as inflation seen low

      Rwanda's central bank left its benchmark interest rate steady, saying it was maintaining an accommodative monetary policy stance as inflation is projected to evolve around the lower bound of its inflation target while there is a need to support the financing of the economic by banks.
     The National Bank of Rwanda (NBR) left its central bank rate (CBR) at 4.50 percent, unchanged since April last year when it was cut by 50 basis points.
      Last year's rate cut extended the bank's monetary easing cycle that has been in place since June 2013. Since then CBR has been lowered by 300 points.
      Rwanda's inflation rate has been decelerating the last three months and fell to 3.5 percent in January from 3.9 percent in December and the central bank projects inflation in 2021 will remain around the lower bound of 2.0 percent due to subdued inflationary pressures.
     In January 2019 NBR switched to using prices instead of money supply to ensure price stability and targets an inflation midpoint of 5.0 percent within a lower bound of 2.0 percent and an upper limit of 8.0 percent.
    Rwanda's economy shrank 4.1 percent in the first three quarters of 2020 compared with growth of 8.3 percent in the same 2019 period but began gradually recovering in the second half of last year, evidenced by a rising trend of the composite index of economic activities (CIEA).
     CIEA rose 9.4 percent in the second half of 2020 after contracting 2.1 percent in the first half.
     "This domestic economic recovery is expected to continue in 2021, supported by policy interventions to revive business activity, despite the uncertainty around COVID-19 and its containment measures," the central bank said, adding the roll-out vaccines globally will enhance optimism and stimulate recovery.
     In December last year the International Monetary Fund (IMF) said Rwanda's response to the pandemic was generally well-designed and forecast the economy would shrink 0.2 percent in 2020 and then expand by 5.7 percent in 2021.
     The IMF also forecast Rwanda's inflation rate would average 2.5 percent this year, then rise to 4.1 percent in 2022 and 5.0 percent in following years.
     Rwanda's franc has been steadily deprecating in the last decade and NBR said it had declined 5.4 percent year-on-year against the U.S. dollar as of December compared with a fall of 4.9 percent in December 2019 as pressure came in the second half of last year as a resumption of economic activity led to higher demand for foreign currencies amid lower inflows.
     NBR expects the foreign exchange market to remain stable with adequate foreign exchange reserves to cover 5.9 months of imports.


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