Rwanda’s central bank announced Tuesday that it has decided to hike the repo rate from 6.0 percent to 6.5 percent in a bid to rein in inflation.
“Inflation is expected to remain elevated for longer than previously forecasted. This is mainly due to continued global economic challenges as well as lower domestic agricultural production,” John Rwangombwa, governor of the National Bank of Rwanda, told a press briefing following a meeting of the Monetary Policy Committee (MPC) and Financial Stability Committee (FSC) of the bank in the capital city, Kigali.
He said that in line with the global and domestic economic developments, Rwanda’s headline inflation increased to 16.4 percent in the third quarter of 2022 from 12.1 percent recorded in the second quarter of 2022.
“Given these developments and outlook, the MPC decided to increase the Central Bank Rate (the repo rate) by 50 basis points, from 6.0 percent to 6.5 percent, to reduce inflationary pressures and preserve consumers’ purchasing power,” added Rwangombwa.
The bank earlier in August increased its repo rate by 100 basis points to 6.0 percent from 5.0 percent to deal with increasing inflationary pressures and therefore preserve the purchasing power of consumers.
Rwangombwa said that the main drivers of the projected high inflation include high imported costs, high prices of imported energy products notably fuel and gas, elevated international food prices, and subdued domestic food production.
According to him, the interbank rate increased to 6.05 percent on average in the third quarter of 2022 from 5.54 percent in the second quarter of 2022.
Rwangombwa said that Rwanda’s merchandise trade deficit increased by 38.3 percent in the third quarter of 2022 mainly due to higher imports driven by rising prices of oil and international commodity prices, despite growing exports.
The bank projected that international commodity prices will remain high, maintaining the observed pressure on imported inflation. Meanwhile, the upward pressure from domestic food production will weigh on food inflation in the second half of 2022, but fade away afterward, according to the central bank.
The central bank said it will continue to monitor the situation closely, engage various stakeholders, and stands ready to tighten the monetary policy further if inflationary pressure remains high.