The meeting of the Monetary Policy Committee (MPC) and the Financial Stability Committee (FSC) announced the increase of the central bank rate (“repo rate”) to 5% after three consecutive meetings which kept the rate at 4 .5%.
The statutory quarterly decision was taken on February 15, 2020 based on the recovery of the country’s economic performance despite the shocks observed under the covid-19 pandemic.
The increase represents an increase of 50 basis points from the previous rate (4.5%) which was announced by keeping the repo rate at an accommodative level of 4.5% from April 2020, February and November 2021.
Central Bank Governor John Rwangombwa said Rwanda’s economy continues to recover, supported by policy support measures and the success of the vaccination program that led to the easing of COVID19-related restrictions.
Since the 2020 pandemic, Rwanda’s real GDP has increased from -3.4% in 2020 to 11.4%, as assessed during the periods between the first and third quarters of 2021.
“To ensure that inflation is contained at an adequate level while continuing to support the economic recovery, the MPC committee has decided to increase the CBR by 50 basis points to 5.0%,” Rwangombwa said. .
The MPC statement indicates that this monetary policy stance will be adequate to continue to support the economy, while containing inflation in the medium term and minimizing the negative effect that inflation would have on the purchasing power of population.
Although economic activities are recovering globally, as indicated by the global GDP growth estimate of 5.9% in 2021 and the projection of 4.4% in 2022, from a contraction of 3, 1% in 2020, global inflation is expected to reach 4.8% this year compared to 4.3% in 2020.
In Rwanda, the committee revealed that headline inflation is expected to hover around 7.5% and with possible threats of reaching 8% by the end of 2022, justifying raising the repo rate to 5% in order to contain this pressure (in the medium term) and negative impact on the purchasing power of the population.
The MPC said it would continue to monitor the situation (largely driven by global fuel price hikes), but also stood ready to take further steps to ensure low and stable inflation and help the economy. economy to stay on a recovery path.
A solid financial sector again
In the meantime, the financial sector has again performed well with good financial stability (as seen in November 2021) despite the fact that the issue of credit risk remains the major risk facing the sector. banking.
For example, the depth of the financial sector continues to expand, with financial assets per GDP increasing to 69% in December 2021 from 66% in 2020 and 57% in the same periods.
In addition, insurer premiums increased by 21.6% vs. 10.4%, insurer claims increased by 22.1% vs. 9.3% and the MFI sector grew thanks to the increase deposits (from 12.9% to 14.6%) and equity (from 11.9% to 17.7%). )
The FSC said the banking sector continues to be sufficiently capitalized to absorb losses (mostly from pandemic shocks) but loan growth has moderated due to increased write-offs (from Rwf22 billion to Rwf 75 billion – meaning new loans increased by 15.4%).