Rwanda’s Central Bank retains benchmark rate at 6.5%

Rwanda's Central Bank has decided to retain the repo rate at 6.5 per cent during its latest monetary policy committee meeting. Governor John Rwangombwa shared insights behind this decision, citing that inflation remained within the target band. The global economic landscape seems stable, with global inflation on a downward trend. Last year, global inflation stood at 5.7 per cent, is expected to drop to 4.2 per cent in 2025, and further decrease to 3.5 per cent next year. This reduction has eased the pressure on imported inflation, benefiting Rwanda. Domestically, Rwanda's economy has been robust, with strong growth noted in the past few years. The economy exhibited a significant expansion, recording a 9.2 per cent growth in the first three quarters of last year. The fourth quarter's numbers are anticipated to maintain this positive trend, indicating a performance surpassing the 8.3 per cent projection from November. Inflation has also been tamed, dropping from an average of 14 per cent in 2023 to 4.8 per cent last year, well within the target band of 2 to 8 per cent. The bank foresees inflation remaining contained at an average of 6.5 per cent this year, supporting the decision to retain the policy rate at 6.5 per cent to preserve price stability. Amidst concerns of inflation in the region, the Central Bank is cautious, closely monitoring potential risks that could escalate inflation. Factors such as adverse weather conditions or geopolitical tensions could impact Rwanda's inflation trajectory. Authorities stand ready to take necessary actions collaboratively to address any emerging issues. Additionally, the recent tax measures announced by the Ministry of Finance aim to enhance government financing for the National Strategy for Transformation 2 (NST2). While the taxes are expected to boost economic capacity and private investments, the Central Bank foresees minimal inflationary effects based on their analysis. The phased implementation over three years allows economic actors time to adjust, minimizing disruptive impacts on the monetary policy stance. In terms of the Rwandan franc's performance, the currency showed improvement last year compared to previous years. The depreciation rate decreased to 9.4 per cent in 2024 from a high of 18 per cent in the previous year. The Central Bank expects further easing with an anticipated depreciation of around 8 per cent this year and aims to return to the normal average of 5 per cent in the medium term. While currency fluctuations can influence inflation through imported goods, the impact is currently minimal and aligns with the bank's projections for stable inflation rates in the coming years. Governor Rwangombwa is optimistic about the Rwandan franc's outlook, emphasizing the gradual return to normal depreciation levels.