Rwanda’s Central Bank maintains key repo rate at 4.5%

Rwanda's Central Bank has decided to maintain its key repo rate at 4.5% for the third consecutive monetary policy committee statement, aiming to increase liquidity in the country's recovering economy. Central Bank Governor, John Rwangombwa, emphasized the importance of economic stability and low inflation rates as the main objectives of the monetary authority. With inflation expected to remain below the medium-term benchmark of 5%, the Central Bank sees no immediate pressure to increase the policy rate. The impact of the pandemic led to a negative growth rate of 3.4% in 2020, followed by a slow recovery in the first quarter of this year due to lockdown restrictions. However, low inflation rates have provided room for an accommodative monetary policy to support economic recovery efforts. The Central Bank aims to encourage banks to continue lending to the private sector to sustain economic growth. Despite concerns about inflation and price fluctuations, the Central Bank remains optimistic about the economic outlook, projecting an average inflation rate of 2.2% for 2021. Governor Rwangombwa addressed the issue of rising prices and inflation, attributing last year's high inflation pressures to various factors such as agricultural performance and increases in transport fares. While some food prices surged significantly in 2020, leading to a peak inflation rate of 9.2% by October, the Central Bank managed to stabilize prices. However, Governor Rwangombwa acknowledged that price fluctuations are influenced by multiple variables and may not return to pre-pandemic levels. He highlighted the importance of maintaining inflation rates within the target range of 2-8% to ensure economic stability and informed policy decisions. Looking ahead, Governor Rwangombwa discussed the potential impact of achieving herd immunity through vaccinations on economic policies. While economic recovery efforts are ongoing, the Central Bank expects aggregate demand to gradually increase by late 2022 or 2023, which could lead to inflationary pressures. As Rwanda focuses on sustainable economic growth and poverty reduction, Governor Rwangombwa expressed confidence in the country's ability to recover from the pandemic-induced downturn. Economic policies will remain geared towards supporting growth and stability, with a goal of returning to normalized conditions in the coming years. Addressing concerns about bank lending and loan quality, Governor Rwangombwa highlighted the rise in non-performing loans from 4.5% to 6.6% within a few months. Despite challenges in loan quality, banks are encouraged to continue lending to support economic activities. The Central Bank emphasized the importance of prudent lending practices and ongoing discussions with borrowers to manage risks effectively. While some shareholders have raised questions about dividend payouts, the Central Bank advised financial institutions to retain profits for liquidity management and credit risk mitigation. The focus remains on ensuring the stability and sustainability of financial institutions for the benefit of depositors and investors. In response to queries about potential changes in dividend payment policies, Governor Rwangombwa underscored the need for prudence and caution in financial decision-making. While discussions with commercial banks regarding dividend payments are ongoing, the Central Bank will assess the quality of loan portfolios and overall financial health before making any policy adjustments. The priority remains on safeguarding the interests of depositors and maintaining the resilience of the financial sector amid uncertainties. As Rwanda's economy continues to recover, the Central Bank aims to strike a balance between supporting growth and ensuring financial stability for long-term prosperity.