The Rwanda economy remains buoyant and on course to attain this year’s growth projections despite global economic challenges, inflationary pressure from trade partners and a weaker national currency, the Governor of the central bank, John Rwangombwa, said yesterday.
Rising inflation from Uganda and Kenya, Rwanda’s major trading partners, is a source of concern as it increases the risk of imported inflation.
Uganda, Rwanda’s northern neighbour and key source of imports, has seen inflation surge from 5.1 per cent in July to 7.4 per cent in August as a result of high food prices.
High inflation rates in trading partners increases the risk for imported inflation through expensive goods that, in turn, can cause price increases at home and undermine economic growth.
Although he observed that the inflation situation in Uganda and Kenya “means something” to policymakers, the governor said the economy remains on course to hit the 7.5 per cent growth target after growing by 6 per cent and 5.7 per cent during the first and second quarters respectively.
He was adressing a news conference after the quarterly meetings of Monetary Policy Committee (MPC) and Financial Stability Committee (FSC), Rwangombwa said that the economy has been performing well despite pressure from the global economy that is hurting, from the Euro Zone financial crisis to the slow growth of the US economy.
He said the country also continued to experience moderate inflation of below 5 per cent even though there was a slight increase from 3.7 per cent to 4 per cent, in August.
Rwangombw said that the slight rise in inflation between July and August was expected due to seasonal changes in food prices.
“We normally have challenges in food prices around that time of the year…. So we consider that moderate inflation and not a cause for worry,” he said adding that the current pressure on the exchange rate was due to high import bill and high government spending in the last half of last financial year, but the situation is expected to normalise soon.
“The Rwanda Franc has had a slight depreciation of 3.9 per cent as of September 27, 2013 since December 2012, but the situation is expected to stablise [by] the end of 2013, on account of increase in foreign exchange inflows as well as gained confidence in foreign exchange market,” he said.
Prospects for strong economic growth are supported by the good performance of the export sector that expanded by 28.9 per cent in value.
Thomas Kigabo, chief economist of the National Bank of Rwanda, said the increase in revenue from exports was a result of high demand for minerals and coffee during the year. Imports declined by 0.7 per cent in terms of value, the central bank said.
“The decline in value [of imports] shows that in spite of the import volumes increasing by 5.3 per cent, the purchasing prices were lower. This was good for the economy,” he said.
Kigabo said this had improved the trade balance, though it remains in deficit, from 21 per cent to 27.3 per cent year on year.
Figures from the National Institute of Statistics indicate that in the second quarter of this year, GDP at current prices was estimated to be Rwf 1,167 bn, up from Rwf 1,052bn year on year.
The services sector contributed 45 per cent of GDP compared to 33 per cent by the agricultural sector. The remainder or 16 per cent was attributable to the industry sector and 6 per cent as adjustment.
Borrowing by the private sector from commercial banks continued to grow, an indication of a sign of expanding economic activity.
“We saw credit to the private sector growing by 7.6 per cent by the end of August, though it had been slower than expected,” Rwangombwa said.
He hinted that the reduction of the key repo rate from 7.5 to 7 per cent in June this year was already resulting into increased lending to the private sector, although slightly.
Bank loans to the private sector significantly improved in the second quarter of the year compared to the first quarter, amounting to Rwf122.9bn against Rwf97.6bn in the first quarter exceeding the level of authorised loans in last year’s second quarter.
Rwangombwa said the banks’ interest rates had also marginally reduced from 17.7 per cent in June this year to 17.5 per cent end August.