Rwanda’s annual inflation rate is projected to rise sharply to 6 percent this year, driven by a rebound in economic activity, after it remained low and stable throughout 2010, a senior official at the International Monetary Fund (IMF) has said.
“The economic outlook for 2011 is generally favorable, with the projected 6-7 percent growth in 2011 being driven by the government’s investment strategy, the recovery in external demand, and the pick-up in credit to the private sector,” Dmitry Gershenson, the IMF Resident Representative told Business Times in an exclusive interview recently.
The annual inflation rate remained stable in 2010, slightly increasing by 0.18 percent in November compared to 0.17 percent in the previous month with imported inflation falling while food prices took a downward trend, on account of the good performance of the agriculture sector.
However, in a parallel interview on Tuesday, Francois Kanimba, the central bank Governor said the prices of goods and services are expected to rise drastically this year mainly due to an increase in local food prices and global oil prices.
“We expect the recent bad weather conditions to have an impact on food prices; rainfall has not been regular and agricultural production has not been as expected. This will have pressure on food markets. Oil prices are also climbing,” Kanimba said.
Oil prices have recently risen to almost $100 a barrel.
The Governor said that agricultural performance in Season A has been disappointing, and as a result, this might trigger an increase in prices of foodstuffs, which comprise the largest share of the Consumer Price Index (CPI)—the main measure of consumer prices.
The Governor also observed that the anticipated ‘vigorous’ recovery in the credit market, this year, will also have an impact on inflation.
Credit to the economy is expected to expand by 15 to 20 percent from approximately 12 percent last year.
“From our discussions with banks, they have liquidity. We do expect higher credit growth. Interest rates in the money markets have also been gradually coming down,” he said.
According to the Central Bank the repo rate—at which it lends to commercial banks has been declining from 9 percent in 2009 to approximately 4-5 percent last year.
While official inflation figures for December are due this week, the Governor says the inflation rate is still within their projections—close to zero.
“There is no surprise –inflation in 2010 was less than 1 percent.”
Last year’s low inflationary pressure boosted economic growth to 6.5 percent, according to the IMF.