National Bank of Rwanda maintains MPR 6.5%

The National Bank of Rwanda has decided to maintain its Monetary Policy Rate (MPR) at 6.5%, despite facing challenges in managing inflation and stabilizing the currency. Gideon Sang, Senior Investment Analyst at BK Capital, shared insights on CNBC Africa about the reasons behind this decision. Sang highlighted that the main objectives of the monetary policy committee and the central bank are to manage inflation, encourage economic development, and stabilize the currency. However, Rwanda has been grappling with rising inflation, with rates reaching 7.4% at the end of January 2025. The currency has also been depreciating steadily, while economic growth has shown positive signs. The last three quarters of 2024 witnessed significant economic growth at an average of about 8%. Despite this, inflation and currency challenges persist, leading to the decision to maintain the MPR to address these issues. In terms of inflation, headline inflation rose to 5.2% in the last quarter of 2024, with food prices also seeing an uptick. However, energy inflation experienced a sharp decline from 5% in quarter three to 1.2% in quarter four. Global trends, such as falling energy prices due to geopolitical factors like the Ukraine and Russia crisis, have contributed to this decline. The continued high global demand for fuel has kept prices elevated, although local government support has helped to stabilize prices and promote economic development. The focus now shifts to addressing food inflation, which remains a significant contributor to headline inflation. In the banking and financial sector, lending institutions have seen growth in assets, indicating increased lending activity. Following a rate cut by the central bank in August, lending rates have decreased, prompting higher borrowing by individuals and businesses. The economy's growth has enabled borrowers to repay their loans, reflecting a positive performance overall in the sector. For businesses and investors, the decision to maintain the MPR sends a message of stability and predictability. With borrowing costs remaining low, businesses are encouraged to take advantage of favorable lending conditions to fund their operations and spur economic growth. The potential for further rate adjustments in response to inflation trends creates an environment where businesses can plan for the future with confidence.