Rwanda’s consumer prices continued to rise in the past months, driving up year-on-year inflation rate for March to 7.5 per cent, up from 5.8 per cent in February 2022.

The latest data from the National Institute of Statistics (NISR) shows that prices of foodstuffs, which increased by 10.2 per cent, were among the main drivers of inflation in March.

The cost of housing, water, electricity, gas and other fuels increased by 8.1 per cent, NISR said, adding that transport rose by 3.8 per cent while restaurants and hotels increased by 14.7 per cent.

Maurice Toroitich, a banker, said that the current inflation stems from the challenges in supply chains posed by Covid-19 in the past two years, and later got compounded by the effects of the Russia-Ukraine war.

"We are likely to see an inflationary environment for a while and one can hope that local production of goods and services improves so that we don’t have to import that much. But it takes time to build,” he noted.

Based on the current events, Toroitich predicts that; "we are likely to see sustained inflation for about six to 12 months.”

Economists have also predicted that the current developments are likely to prompt the central bank to raise lending rates in order to reduce the supply of money in the market.

Faced with uncertainties in the global market, in February this year, the central bank increased the key repo rate to 5 per cent from 4.5 per cent.

Toroitich is of the view that if inflation continues to rise, the central bank might even increase the repo rate further up.

The key repo rate is the maximum rate at which commercial banks invest their money at the central bank. Increasing the rate makes it ideal for banks to invest their funds with the central bank as opposed to lending it.

Followed by the increase in interbank rate, Toroitich said, it subsequently leads to an increase in deposit and lending rates, which means that "the cost of money is likely to also go up.”

He noted that raising the interest rate would help tame inflation, although the downside of it means that accessing capital would be expensive. 

The central bank says that it aims to achieve low and stable inflation, between 2 and 8 per cent in the medium term with a benchmark of 5 per cent.

In its latest monetary policy and financial stability report, the central bank said that will continue to monitor domestic and global macroeconomic developments and take necessary actions to keep headline inflation within the band in the medium-term.