Rwanda’s Central Bank maintains MPR at 6.5%

Rwanda’s Central Bank has recently announced the decision to maintain its repo rate for the second time in the last two sittings of the policy committee. The bank's decision to keep the rate unchanged was based on the solid macro-economic fundamentals of the economy. Governor John Rwangombwa remains optimistic about the economy's growth, forecasting a promising 8.3 percent increase in 2024, although some risks loom on the horizon. In an exclusive interview with CNBC Africa’s Aby Agina, Governor Rwangombwa provided insights into the factors influencing the bank's decision. One key aspect discussed was inflation, which has been well-controlled within the desired band. The Governor highlighted that they expect the average inflation for 2024 to stand at 4.6 percent, below their benchmark of 5 percent. This achievement was credited to several factors, including a significant drop in food prices due to improved agricultural performance both locally and globally. Additionally, international commodity prices saw reductions, further contributing to the decline in inflation. The monetary authority also implemented measures to mitigate any potential second-round effects stemming from supply shocks, ensuring the stability of inflation. Looking ahead, Governor Rwangombwa anticipates some challenges in 2025, particularly related to the adverse impact of climate change on agricultural production in specific regions of the country. As a result, the bank adjusted its inflation projection for 2025 to 5.8 percent, although it remains within the target band. Despite these challenges, the Governor expressed satisfaction with the overall economic performance, citing a streak of strong growth over the past several years. The positive outlook for the economy is further reinforced by the global economic landscape, which is expected to grow at around 3.2 percent. However, external pressures such as conflicts and climate-related issues pose risks that could impact the region's economic trajectory. Governor Rwangombwa emphasized the importance of incorporating these risks into their projections and policy decisions. The bank is prepared to respond to any uncertainties arising from geopolitical tensions and climate change, reaffirming its commitment to safeguarding economic stability. Reflecting on the regional context, Governor Rwangombwa noted that 2024 has been favorable for Rwanda and neighboring countries like Uganda, Kenya, and Tanzania. These nations have witnessed stable inflation rates and benefited from improved agricultural performances and reduced global price pressures. While Southern Africa faced challenges due to severe droughts, the East African region has collectively navigated the year with resilience. When considering the road ahead, the central bankers in the region are focused on maintaining strong financial buffers to address any unexpected developments. The collaborative efforts within the region signal a shared commitment towards reinforcing economic resilience and stability. As Rwanda concludes its economic events for 2024, the stage is set for continued vigilance and proactive measures to navigate potential challenges and seize opportunities for sustainable growth in the coming year.