Maintain a tight monetary policy

A recent report by the World Bank on Rwanda suggests a bright outlook despite a turbulent global economy, rattled by high fuel and food prices. Regional economies including the East African member states where Rwanda is a net importer are experiencing high inflationary pressures on top of weakened currencies.

A recent report by the World Bank on Rwanda suggests a bright outlook despite a turbulent global economy, rattled by high fuel and food prices.

Regional economies including the East African member states where Rwanda is a net importer are experiencing high inflationary pressures on top of weakened currencies.

These factors combined with the recent drought in the Horn of Africa could adversely affect the Rwanda economy unless policy makers, mainly at the Central Bank and the Ministry of Finance, maintain a carefully coordinated fiscal and monetary policy.

The country has managed to endure these global economic shocks and regional crises thanks to a sound macroeconomic policy.

Last week the Central Bank decided to tighten the monetary policy further by raising the key repo rate by five percentage points to 7 per cent, to tackle upward inflationary pressures.   The key repo rate is the interest rate at which the Central Bank lends to commercial banks.

This is the second time the bank is raising the policy rate this year. The first was last month when the bank hiked the rate to 6.5 per cent.  

The policy decisions by the Central Bank did not get an entirely positive response from some members of the business community who have expressed concern that banks could respond with costlier loans, hence hurting the entire economy.

But a closer look at the current volatility within the region and global economies, suggests that the Central Bank needs to maintain a tight monetary policy, to protect the economy.

With abundant liquidity within the banking system and a projected robust economic growth, it is prudent for the Central Bank to maintain its policy stance.

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