The National Bank of Rwanda’s decision to raise the Central Bank Rate by 100 basis points to 8.25 per cent is not surprising. Inflation has moved well beyond the comfort zone. Headline inflation rose to 9.1 per cent in the first quarter of 2026, from 7.4 per cent in the previous quarter, before jumping further to 13 per cent in April. This is well above the 2–8 per cent target range. In that context, the BNR’s Monetary Policy Committee (MPC) had to act. A central bank that hesitates when inflation is accelerating risks losing credibility. Once households, businesses, and lenders begin to believe that high inflation is here to stay, price-setting behaviour changes. Workers demand higher wages, businesses raise prices in anticipation of future costs, and banks reprice risk. At that point, inflation becomes harder and more painful to reverse. Tighter monetary policy, combined with other government measures, should indeed help bring inflation back toward the 5 per cent objective over the medium term. The central bank points to stronger monetary transmission, with the interbank rate moving closer to the policy rate. This matters because a policy rate is only useful if it influences market behaviour. But the harder question is whether this rate hike can deal with the kind of inflation Rwanda is facing. The central bank acknowledges that inflation is being driven by both domestic and external factors, including higher energy prices, fresh food prices, transport costs linked to Middle East disruptions, and lingering effects of earlier price adjustments in areas such as health, education, and electricity. These are not problems that interest rates can solve directly. Higher rates may cool demand, but they cannot increase agricultural output, lower global fuel prices, or reopen disrupted trade routes. That is why the biggest test for BNR is not whether it can raise rates. It is whether it can help bring inflation down without unnecessarily weakening productive activity. Rwanda’s economy remains resilient, with strong growth recorded in 2025 and continued demand in early 2026. But higher borrowing costs can affect businesses, households, and investment decisions. If credit becomes too expensive for sectors that expand supply, such as agriculture, manufacturing, exports, housing, and SMEs, the policy could create new pressures even as it fights old ones. The central bank is right to defend price stability. Inflation is a tax on everyone, especially the poor. But monetary policy cannot carry the whole burden. The government’s complementary measures must be equally clear, practical, and urgent.
