As the economy registers strong recovery from the local credit squeeze, the Central Bank says that Inflationary pressures will rise to between 6-10 percent by the end of this year from about 6 percent in December 2009.
François Kanimba, Governor of the National Bank of Rwanda (NBR) said yesterday that the current recovery of the credit market will increase money in circulation and restore domestic demand.
“We do expect higher inflation because the credit market is being reactivated and this will stimulate domestic demand. We expect the credit market to grow by 20 percent this year,” the Governor told Business Times in an interview.
In what is seen as the first major sign of recovery of the local credit market, in November 2009, commercial banks approved loans worth Rwf26 billion, the highest performance in the history of Rwanda’s credit market.
This is in contrast to the significant drop of 24 percent in credit to the private sector that was recorded in the second quarter of 2009.
Kanimba said that the Central Bank has targets to keep the inflation figures in single digits this year.
However, he mentioned that if the agricultural sector continues to perform well, it will help to contain the situation.
In the last three months of 2009, Rwanda’s inflation registered a slight increase, rising in the range of 5- 6 percent on account of rising prices of food and non-alcoholic beverages.
Kanimba explained that better agricultural performance will also contribute to stability of the exchange rate in the foreign market, something that will ease inflationary pressures in the course of this year.
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.
“Our exchange rate will continue to be stable and this will help,” the Governor said.