Rwanda’s inflation for the month of September is expected to rise slightly to 5.1 percent from the 4.86 percent recorded last month due to a hike in food prices experienced last month.
Central Bank Governor, François Kanimba told Business Times yesterday that despite last month’s increase, Rwanda is experiencing relatively low price levels of goods and services.
This is contrary to high inflationary pressures that prevailed throughout 2008.
From 22.3 percent in December last year, the annual overall inflation fell to 17.1 percent in March 2009, 10.1 percent in June and 5.8 in July.
With such a trend, there is no doubt that the objective of containing inflation in one digit numbers in 2009 will be achieved, the Governor said.
“Inflation figures are going down and there are a number of explanations but most importantly the performance of the agricultural sector,” Kanimba said, pointing out that this has contributed to stabilising of food prices in the market in the recent past.
Kanimba noted that inflation has dropped partly because of falling commodity prices on the international market.
“For Rwanda, prices of imported goods have diminished this year compared to 2008 for all categories of imports,” he added.
The Governor also mentioned that the stability of the exchange rate in foreign market has also had an impact on the downward trend of inflation.
The Rwanda Franc exchange rate against the US dollar was quite stable during the first half of 2009, registering a moderate depreciation of 2.3 percent between December 2008 and June 2009.
Due to liquidity crunch experienced at the beginning of the year the Governor observed, the extension of new credit has been relatively low resulting into stabilisation of monetary aggregate, contributing to the downward trend of inflation.
“Broad money and supply has not been increasing, resulting into less pressure on domestic prices,” he said.
Broad Money decreased by 4.9 percent by end June compared to December 2008, while initial monetary program targeted an increase of 4.5 percent. During the same periods of 2007 and 2008, Broad Money had increased by 6.5 percent and 3.6 percent respectively.
“On the monetary aggregate, credit markets are recovering very strongly,” the Governor said, citing improvements in September as a result of government’s move to boost liquidity in banks by creating a fund for long -term financing.
“This will reduce domestic prices as demand is increasing due to reactivation of the domestic market,”
Looking ahead, Kanimba said he does not expect significant changes in figures in the current trend owing to regular rains in the last quarter of the year. The rain season will help to curb food prices and keep them stable.