The Central Bank of Rwanda (BNR) has maintained the key repo rate at 4.5% to allow commercial banks to continue financing businesses and households as a way of cushioning the impact of Covid19 on the economy.
In its statutory quarterly Monetary Policy Committee (MPC) meeting held on August 12, the bank said the decision was informed by the inflation projections expected to decelerate in the last quarter of 2020.
“This decision along with other policy measures implemented by the government, will support commercial banks to continue financing business and households,” the MPC said in a press statement.
Some of the measures to mitigate the economic impact of Covid-19 since April, include Rwf23.4billion injected into the banking sector to ease liquidation through a reduced bank’s lending rate from 5% to 4% and Rwf50billion floated to banks to have money to lend to businesses.
These will be backed by the government’s newly established Rwf101billion Economic Recovery Fund (ERF) to enable affected businesses to resume and cushion shortfalls in their business operations thus ease flow of money in the economy.
BNR said that by maintaining lending rate (CBR) at 4.5% will trickle down in the economy thus reducing market interest rates which have already been reducing to 16.14% in the first quarter 2020 from 16.64%
Domestic economy recovery projections
The real GDP growth decelerated in the first quarter of 2020 compared to 6.1% in the same period in 2019 and to be prolonged in the 2nd quarter (Q2) as early indicators in economic performance (CIEA) decreased by 8.8% in Q2 compared to an increase of 16.5% recorded in same period in 2019.
Despite this, BNR said that reopening of several local and global economic activities and government supported economic initiatives, the economy is expected to pick up in the second half of 2020.
“This is evidenced by an upward trend of CIEA with an increase of 8.4% in June (2020)” the bank said.
To keep the economy stable and price stable, the bank has projected a new headline inflation to stabilize with an average of 6.9% despite unexpected increase in transport costs.
BNR had earlier projected inflation below a benchmark of 5% especially in the 4th quarter 2020, but headline inflation increased to 8.7% (in Q2) from 8.2% (in Q1) as a result of an upwards revision of transport costs due to Covid-19.
“As a result of the aforementioned increase in transport inflation, the average inflation for 2020 is revised to 6.9% from 6.0% projected in April 2020,” BNR said in a statement.
As good news for importers and exporters, BNR said that the foreign exchange market is also expected to remain stable with its adequate foreign exchange reserves able to cover 6.3months as of end of July 2020, despite a slight 2.3% depreciation of the Rwanda franc against the US dollar by end July, which is slightly lower than the 2.6% in the same period of 2019.