Rwanda’s economy projected to grow at above 6% as inflation softens

Rwanda’s economy is on track for a positive trajectory in the coming year, with the service and agricultural sectors showing signs of improvement after a challenging 2023. The National Bank recently announced its decision to maintain the base lending rate at 7.5 per cent, citing a decrease in inflation. In an exclusive interview with CNBC Africa, Central Bank Governor John Rwangombwa provided insights into the country's economic outlook and key growth areas. The Governor highlighted the central bank's focus on bringing inflation back within the target range of two to eight per cent, with a projected inflation rate of six per cent for the next year. Despite moderating economic growth, Rwanda is expected to achieve a 6.2 per cent overall economic growth rate for the current year, buoyed by strong performance in the services sector. The services sector, driven by tourism, trade, and financial services, is poised to remain robust, with construction also showing signs of growth. Agriculture, a consistent performer in recent years, is expected to bounce back in the upcoming year. Governor Rwangombwa expressed confidence in the economy's continued strong performance, underpinned by the resilience of key sectors. The Governor also addressed potential risks, citing geopolitical tensions and weather conditions as factors that could impact inflation and economic stability. He emphasized the importance of normalizing agriculture performance and mitigating external risks to ensure sustained growth. In terms of currency performance, the Rwandan franc has faced pressure due to a widening trade deficit and increased demand for imports. However, the Governor reassured that measures are being taken to manage market conditions and stabilize the currency. While global fuel prices have fluctuated, Rwanda is expected to weather these challenges based on projections from international institutions. The Governor also discussed interest rates, noting that the lending rates have not fully aligned with monetary policy adjustments, highlighting the nuances of the financial system. Despite stable financial sector performance, regulatory measures have been taken to address malpractices in the forex market, ensuring market integrity. Looking ahead, the Governor shared insights on the progress towards a common currency in East Africa, emphasizing the need for a common market to support a monetary union. While there is still work to be done, the establishment of the East African Monetary Institute is expected to drive progress towards a monetary union in the region. Overall, Rwanda's economic outlook remains positive, with a focus on sustainable growth and stability in key sectors.