The announcement was made by BNR Governor and Chairperson of the Monetary Policy Committee (MPC), John Rwangombwa, during a press conference in Kigali on Thursday.
The decision follows the MPC's meeting on February 12, 2025, where members assessed the impact of previous monetary policy decisions, evaluated recent global and domestic economic developments, and reviewed economic projections for the next three months.
The 6.5 percent lending rate was first introduced in August 2024 after being reduced from 7.0 percent and was subsequently maintained during the November 2024 meeting.
Governor Rwangombwa said headline inflation remained within the target range of 2 to 8 percent in the fourth quarter of 2024, despite some upward pressures in food and core inflation.
The MPC projects inflation will average 6.5 percent in 2025 before declining to approximately 4.1 percent in 2026. However, risks such as geopolitical tensions and adverse weather conditions affecting food prices could exert upward inflationary pressures.
"The Monetary Policy Committee has decided to maintain the central bank rate at 6.5 percent, a level considered adequate to keep inflation within the target range, with forecasts averaging around 6.5 percent in 2025 and 4.1 percent in 2026," Rwangombwa announced, adding that the MPC will continue monitoring global and domestic economic developments and stands ready to take appropriate action to ensure price stability.
In the fourth quarter of 2024, headline inflation rose to 5.2 percent, up from 4.1 percent in the previous quarter. This increase was driven by higher core and fresh food inflation, which offset a decline in energy inflation.
Core inflation rose slightly from 5.3 percent to 5.4 percent, primarily due to rising costs in housing materials and services, as well as increased input costs for alcoholic beverages.
Fresh food inflation surged from 0.2 percent to 5.6 percent due to base effects from the previous year's sharp vegetable price decline. Meanwhile, energy inflation declined due to lower liquid and solid fuel prices.
For the full year 2024, headline inflation averaged 4.8 percent, significantly down from 14 percent in 2023. This disinflation was largely attributed to improved agricultural production, the lagged effects of prior monetary policy tightening, and government-led measures to curb inflation.
Rwanda's economy demonstrated strong growth in 2024, with real GDP expanding by an average of 9.2 percent in the first three quarters, following 8.2 percent growth in both 2022 and 2023. The growth was broad-based, with industry and services sectors registering double-digit expansion, while agriculture rebounded from previous poor harvests.
"High-frequency indicators show continued growth momentum in the last quarter of 2024, primarily driven by strong activity in the industry and services sectors. The Composite Index of Economic Activity (CIEA) rose by 15.7 percent year-on-year in the fourth quarter of 2024, indicating that the economic growth for the year 2024 will likely exceed the projection of 8.3 percent," the governor revealed.
Rwanda's merchandise trade deficit improved in the fourth quarter of 2024, supported by a 15.8 percent growth in exports, driven by stable commodity prices and strong regional demand for manufactured goods and re-exports.
Meanwhile, imports recorded a modest 3.3 percent increase, reflecting strong domestic demand for raw materials and energy products. Consequently, the trade deficit narrowed by 3.7 percent in the last quarter of 2024.
The pressures on Rwanda's foreign exchange market eased in 2024 compared to the previous year. By December 2024, the Rwandan Franc had depreciated by 9.42 percent against the US dollar, a significant improvement from the 18.05 percent depreciation recorded in 2023.
Additionally, Rwanda's gross official reserves stood at 5.4 months of import cover, well above the 4-month benchmark.
Money market interest rates reflected the central bank's monetary stance, with the interbank rate averaging 6.78 percent in the fourth quarter of 2024, down from 8.25 percent in the same period the previous year.
This decline was attributed to the 100-basis point CBR reduction in May and August 2024, as well as ample liquidity in the banking system.
While short-term lending rates declined, the overall lending rate increased slightly by 7 basis points to 15.85 percent, mainly due to a higher proportion of individual loans, which typically carry higher interest rates.
The deposit rate also rose by 45 basis points to 10.5 percent in the fourth quarter of 2024, reflecting an increased share of long-term deposits.
Wycliffe Nyamasege
Source : https://en.igihe.com/business/article/rwanda-s-central-bank-maintains-lending-rate-at-6-5
