Rwanda: BNR cuts policy rate by 50 bps to 7%

Rwanda's National Bank has made a significant decision to cut its policy rate by 50 basis points to 7 per cent, attributing the move to a decrease in inflation and positive economic trajectory. In an exclusive interview with CNBC Africa's Tesi Kaven, BNR Governor, John Rwangombwa, shed light on the implications of this policy shift and the anticipated impact on the country's economy. Rwangombwa emphasized the importance of the reduction in policy rates as a means to stimulate economic growth and increase access to finance for the private sector. The Governor highlighted the expected cascade effect of the rate cut on various interest rates, including short-term money market rates, deposit rates, and lending rates by banks. He expressed confidence that this move would transition the economy from tight monetary conditions to easing, thereby creating more opportunities for financial institutions to support economic activities. Rwangombwa also addressed the potential impact on inflation, stating that the reduction in policy rates reflects the bank's confidence in maintaining inflation within the targeted range. While acknowledging the influence of currency depreciation on inflation, he underscored the counterbalancing effect of global commodity prices and food inflation, which are expected to mitigate any significant uptick in inflation. Moreover, the Governor dismissed direct correlation between the repo rate cut and non-performing loans (NPLs) in the banking sector, attributing the slight increase in NPLs to specific factors unrelated to the overall economic outlook. He assured that the assets of financial institutions remain healthy and projected a positive outlook for the sector's performance, buoyed by the conducive monetary policy environment. In conclusion, the BNR Governor's insights signal a strategic shift towards fostering economic growth and stability, as Rwanda navigates a dynamic economic landscape characterized by evolving inflation dynamics and external factors.