BNR to pursue expansionary monetary policy as inflation falls

The National Bank of Rwanda (BNR) will continue to increase money in supply to spur economic growth if inflation continues to drop, the Bank’s Deputy Governor, Ambassador Claver Gatete has said.
Claver Gatete, the Deputy Governor of BNR.
Claver Gatete, the Deputy Governor of BNR.

The National Bank of Rwanda (BNR) will continue to increase money in supply to spur economic growth if inflation continues to drop, the Bank’s Deputy Governor, Ambassador Claver Gatete has said.

Rwanda’s annual inflation eased slightly from 2.46 percent in February to 2.05 percent in March. The change represents a 0.41 percentage points drop.

Gatete said in an interview that the current inflation rate was inline with the Bank’s target to contain it (inflation) in the single digits band at the end of the year.

The National Institute of Statistics of Rwanda (NISR) said early last week that core inflation, which strips out fresh food and energy eased to 0.14 percent compared to 1.62 percent in February.

“The inflation which is between 1 percent and 5 percent is fine,” said Yusuf Murangwa, Acting Director General of the NISR.

The statistics body said in its monthly Consumer Price Index (CPI) that prices of imported products decreased by 0.38 percent on annual change while locally produced goods increased by 2.68 percent on annual change with a monthly variation of 0.45 percent.

Ambassador Gatete told Business Times that inflation was declining due to the favourable weather conditions and the government’s continued investment into the agriculture sector that has helped to ease prices of foodstuffs.

“We have also set up liquidity management instruments at the Central Bank that help us to mop-up excess liquidity in the economy,” Gatete said.

Rwanda’s inflation has been low and stable since last year, inspiring BNR to slash its key repo rate at which it lends to commercial banks by 50 basis points to 7 percent in March.
The move was aimed at increasing lending to the private sector and mend economic growth that fell by 5.7 percent in 2009 from 11.2 percent in 2008. 

Official government projections suggest that Gross Domestic Product (GDP) growth will reach 7 percent this year on the back of the good performance of the agriculture sector as well as the improvement in the liquidity conditions in the economy.

However, despite the Central Bank’s intervention lending rates by commercial banks have remained high, making it difficult for the private sector to access credit.

Gatete said rates on the money market were also taking a downward trend in response to the low inflation.

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