The National Bank of Rwanda (BNR) says it will focus on addressing current inflationary pressures resulting from a mismatch between global demand and supply.

The outlook is contained in the lender's "Annual Report” released Tuesday, November 1, which highlights current inflation rates as a substantial economic concern.

Inflation is basically the general increase of the price level of goods and services in the economy over a given period (generally a year). Inflation measures the cost of living in most economies.

According to the breakdown, Rwanda’s inflation evolved within the targeted band, with the 12-months average standing close to the benchmark.

Besides rising import costs from the supply chain disruptions following COVID-19, pressures remained generally subdued.

However, the Central Bank said, pressures mounted in the first half of 2022, and have already fuelled rising prices, hence high inflation towards the end of this previous fiscal year.

"These pressures will persist and maintain high inflation in the first half of next year (2023),” the report reads in part.

"Initially, these pressures emanate from supply shocks. Given the length of shocks, the recorded reaction of monetary policy aimed principally to counteract the second-round effects and may not eliminate all the inflationary pressures. Therefore, the risks of inflation staying outside the band are considerable,” added the report.

Substantial concern

Since the beginning of this year, authors of the report observed that inflation has become a substantial economic concern, slowing Rwanda’s economic stabilisation efforts.

"The main reasons for rising inflation were unfavourable weather conditions, an increase in prices of agricultural inputs that led to poor performance of domestic agricultural production for seasons 2022A and 2022B, and high international commodity prices attributed to global COVID-19 restrictions and the Russia Ukraine war,” according to the report.

For instance, in the first half of 2022, average headline inflation increased to 9.0 per cent compared to 1.4 percent and 0.3 percent recorded in the first and second half of last year.

This, BNR said, forced the tightening of monetary policy by 50 basis points to 5 per cent from 4.5 per cent.

The lending rate has since risen to 6 per cent.

"Irrespective of the high inflation, the Central Bank remains confident that inflation will ease in the second half of 2023 and expects it to converge towards the 5 percent benchmark,” Central Bank added in the report.

Elsewhere

According to the findings, world annual average inflation increased to 4.7 percent in 2021 from 3.2 percent in 2020.

In advanced economies, BNR said, consumer price inflation accelerated to 3.1 per cent in 2021 from 0.7 per cent in 2020.

Global annual average inflation is forecasted to surge to 8.3 per cent, while that of advanced economies is expected to increase to 6.6 per cent in 2022, as the war in Ukraine results in demand-supply mismatches and continues to aggravate spikes in commodity prices.

At the level of Sub-Saharan Africa, annual headline inflation is projected to rise to a double-digit of 12.2 per cent in 2022 from 11.0 per cent in 2021.

Meanwhile, Rwanda’s economy grew at 8.9 per cent against the 4.4 per cent recorded in the previous financial year.

"This is because public health restrictions in response to the pandemic were relaxed due to a countrywide vaccination campaign that allowed businesses to re-open,” the report added.