The National Bank of Rwanda (BNR) has said that the decision by its Monetary Policy Committee (MPC) to increase the policy rate from 7.25 per cent to 8.25% is expected to stabilise inflation. The committee increased the rate by 100 basis points on Thursday as it reviewed recent developments. This follows a February decision to raise the key interest rate by 50 basis points. These decisions follow a steep rise in inflation, which increased 13 per cent in April from 9.2 per cent in March this year. This is well above the central bank’s target of 2-8 per cent. ALSO READ: Central bank raises key interest rate to 8.25% Average inflation is projected to increase further at 13.9 per cent in 2026, higher than the 9.4 per cent forecast in February 2026. Central Bank Governor Soraya Hakuziyaremye explained that the latest decision, coupled with other government measures, will help stabilise prices. “The decision to increase the CBR is a measured step to bring inflation within our target band to safeguard price stability, which is a necessary condition to sustain economic growth,” the governor said, adding that this will also protect the purchasing power of Rwandans over the medium term. ALSO READ: Central Bank raises key interest rate by 50 bps to reign in inflation Expected impact When a central bank raises interest rates, it makes borrowing more expensive and saving more attractive, as banks increase lending rates. This slows down spending and investment in the economy, which helps reduce inflationary pressure. By reducing overall demand for goods and services in the economy, this cooling effect forces businesses to stabilise or lower their prices, thereby bringing inflation down. If consumers and businesses spend less, shops sell fewer products, demand weakens, and sellers become less able to raise prices aggressively. Kasai Ndahiriwe, BNR’s Director of the Monetary Policy Department explained that once the public is informed about price expectations, they begin to make more cautious financial decisions, including reducing their spending. “They also become more selective about the types of loans they apply for. Similarly, banks adjust their lending decisions by becoming more cautious about which loans to approve,” he said. “For example, banks may reduce consumer lending and instead prioritize long-term loans that can have a more productive and lasting impact on the economy. a more productive and lasting impact on the economy,” he added. Consumer loans are loans that individuals take to finance personal spending rather than business or income-generating activities. ALSO READ: How will central bank’s rate hike tame inflation? “In this case, a loan to finance a wedding is not necessary, so demand for such loans decreases, reducing pressure on the market and prices,” he noted. In February this year, the committee had increased the rate by 50 basis points to 7.25 per cent as inflation continued to rise. As a result, the interbank market rate, the rate at which commercial banks lend and borrow short-term funds from one another, increased to 7.13 per cent in the first quarter of 2026, up from 6.77 per cent in the same period of 2025.
