Central Bank Governor John Rwangombwa made the announcement on Wednesday, August 21, 2024, following a Monetary Policy Committee (MPC) meeting held the previous day.
In his address to the media, Rwangombwa noted that in the second quarter of 2024, headline inflation slightly increased to 5.1 percent in the first quarter, up from 4.7 percent, but remained within the target range of 2 to 8 percent.
He further affirmed that inflation in 2024 and 2025 is expected to remain within the target range, stabilizing around 5 percent.
'Given the current and anticipated stable trend in inflation, the MPC has reduced the CBR by 50 basis points to 6.5 percent from 7.0 percent,' Rwangombwa announced.
The decision to reduce the country's monetary policy rate is expected to make borrowing more affordable compared to last year, encouraging increased spending and investments.
During its last review in May, the Central Bank reduced the key lending rate from 7.5 percent to 7.0 percent, citing a similar inflation trend. Inflation has decreased significantly since January 2023, when the rate stood at 20.7 percent.
Rwangombwa has attributed the rise in inflation in the second quarter of 2024 to increases in core and energy inflation, which offset a decrease in fresh food inflation.
He explained that the rise in core inflation from 5.6 percent to 6.4 percent was driven by higher transport costs, following an upward revision in public transport fares in March and April this year, as well as increased vehicle prices during the second quarter.
'This was partly offset by the decline in fresh food inflation from 2.5 percent to 1.6 percent resulted from an improved supply of certain fresh fruits and vegetables such as sweet potatoes, cassava roots, tomatoes, green peas and green bananas from Season B 2024 harvest, along with remaining stocks from the bumper harvest of Season A,' he explained.
'There is also a base effect since some vegetable prices were higher in the corresponding quarter of last year. On the other hand, energy inflation rose from 2.7 percent to 4.5 percent due to higher liquid fuel prices after the upward revision in pump prices in April, aligning with international oil trends.'
For 2024 and 2025, headline inflation is projected to remain close to 5.0 percent due to easing food inflation as domestic agricultural production returns to normal levels.
On the other hand, core inflation is expected to increase in 2024, driven by import costs, but is anticipated to decrease in the second half of 2025. Energy inflation is likely to increase slightly in 2024, in line with international oil price projections.
Risks
The Central Bank Governor, however, warned that the projections could be affected by various risks and shocks. Heightened global geopolitical tensions due to conflicts in the Middle East and between Ukraine and Russia could create uncertainties around international commodity prices. Additionally, adverse weather conditions could impact future agricultural supply and food prices.
Meanwhile, Rwanda's deficit expanded by 9.5 percent in the second quarter of 2024, driven by increased imports compared to exports.
The Central Bank revealed that merchandise exports increased by 0.9 percent in the second quarter of this year, constrained by weak coffee performance due to declining global commodity prices and seasonal factors, as well as reduced revenues from processed food exports. In contrast, merchandise imports rose by 6.4 percent, mainly due to strong demand for core food items, energy products, and some capital goods.
Latest data from the National Institute of Statistics (NISR) shows that the country's trade deficit widened by 30.9 percent year-on-year, reaching $411.6 million in June this year, up from $314.5 million in June 2023.
On a month-by-month basis, the trade gap expanded by 13.7 percent, from $362 million in May to $411.6 million in June.
The Central Bank notes that the trade deficit continues to put pressure on the Rwandan Franc, though the pressure is lower compared to last year.
'By the end of June 2024, the Rwandan Franc had depreciated by 3.70 percent against the US dollar, compared to 8.80 percent in the same period last year,' Rwangombwa explained.
He assured that, with private and government inflows, gross official reserves stood at 4.7 months of import cover as of June 2024 and are projected to remain adequate, exceeding the 4-month benchmark in the medium term.
Wycliffe Nyamasege
