Rwandans are set for expensive loans after the central bank decided to raise its key repo rate to seven per cent from 6.5 per cent in its battle against the stubbornly rising inflation.

"The central bank has taken the correct decision.  At the moment, we predict more risks to come and this is one of the measures to mitigate them,” Central bank Governor, Amb.Claver Gatete said during a press briefing on Friday.

Rwanda’s inflation increased to 7.76 per cent in October 2011 from 6.64 per cent in the month of September.

Although the central bank increased the key repo rate by 50 basis points to 6.5 per cent in credit growth to the economy remained strong with banks’ authorised loans to the private sector expanding to Rwf274.2b as at November 5, 2011 compared to Rwf226b in the first ten months on of 2010.

This means that credit to private sector increased by 23.4 percent higher than the projected 19.2 percent.

"Also contributing to the monetary expansion was the increase in composite economic activities by 14 per cent in nominal terms compared to 7.1 per cent registered same period last year,” the Governor said.

Inflation continues to be unpredictable due to inflationary pressures that have been upward on increasing energy and non-energy commodity prices. The food price increase is driven by mainly weather conditions in major producing countries and rapidly increasing demand especially from emerging economies.

Major food prices that recorded a hike include, maize which increased by 83 per cent, sugar 60 per cent, wheat 52 per cent and soya beans above 47 per cent.

Considering the situation, even though inflation is still under control, the central bank’s monetary policy committee says they continue to monitor the situation with the view that a change to the existing monetary policy stance is warranted.

Rwanda has the lowest inflation rate in the region and the Governor says that the central bank will keep the franc stable.

"It is possible to control both exchange rate at the same time without losing our foreign reserves, we have enough reserves, six months of imports, we don’t see any reason depreciating our currency,” Gatete said.

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