The Monetary Policy Committee (MPC) and Financial Stability Committee (FSC) Meeting has announced increasing the Central Bank Rate (‘Repo rate’) to 5 percent after three consecutive meetings that retained the rate at 4.5 percent.
The statutory quarterly decision was reached this February 15, 2020 based on the country’s recovering economic performance in spite of the shocks witnessed under the covid-19 pandemic.
The increase represents a 50 basis points increase from the previous rate (4.5%) that was announced retaining the repo rate at an accommodative level of 4.5% from April 2020, February and in November 2021.
The Central Bank Governor, John Rwangombwa said that Rwanda’s economy continues to recover, supported by policy support measures and the successful vaccination agenda which prompted easing of COVID19 restrictions.
Rwanda’s Real GDP has since the 2020 pandemic time grown from a -3.4% in 2020 to 11.4% as assessed in the periods between the first and third quarters of 2021.
“To ensure that inflation is contained at an adequate level while continuing to support economic recovery, the MPC committee decided to increase the CBR by 50 basis points to 5.0 percent,” Rwangombwa said.
The MPC statement said that this monetary policy stance will be adequate to continue supporting the economy, while containing inflation in the medium term and minimize the negative effect inflation would have on the population’s purchasing power.
Though Economic activities are recovering globally as indicated by the 5.9 percent global GDP growth estimate in 2021 and 4.4 percent projection in 2022, from a contraction of 3.1 percent in 2020, global inflation is projected at 4.8% this year compared to 4.3% in 2020.
In Rwanda, the committee revealed that headline inflation is expected to stand at around 7.5% and with possible threats of reaching 8% towards the end of 2022 thus a reason to increase the repo rate to 5% as way of containing this pressure (in the midterm) and negative impact on the population’s purchasing power.
The MPC said that they will continue to monitor the situation (largely determined by global fuel price hikes) but also stand ready to take further action to ensure a low and stable inflation and support the economy to remain on a recovery trajectory.
Sound Financial Sector Again
In the meantime, the financial sector once again had a good performance with a sound financial stability (as seen in November 2021) despite the fact the issue of credit risk remained the major risk facing the banking sector.
For instance, the depth of the financial sector continues to expand with financial assets per GDP increased to 69% as of December 2021, from 66% in 2020 and 57% in the same periods.
Also premiums of insurers increased by 21.6% from 10.4 %, as claims of insurers increased by 22.1 % from 9.3 % and the MFIs sector expanded supported by increase of deposits (from 12.9% to 14.6%) and equity (from 11.9% to 17.7%)
The FSC said that the banking sector continues to be adequately capitalized to absorb losses (mainly driven by pandemic shocks) but growth of loans moderated due to increased write-offs (from Rwf22billion to Rwf75billion – meaning new loans increased by 15.4%).