The central bank yesterday decided to keep its key repo rate at a record low of 6 percent until mid this year to tackle inflation as the economy faces domestic and external shocks.
The key repo rate—the interest the central bank charges on loans to commercial banks—is often used to influence interest rates at which commercial banks’ customers and businesses pay loans.
Francois Kanimba, the Governor of the central bank, said that the decision reflects a shift in the monetary policy stance to send a signal to commercial banks to increase lending to the private sector.
“This is to ensure inflationary pressures are well anchored to avoid shocks from oil and non oil commodity prices,” Kanimba said during a press briefing yesterday.
The central bank’s monetary policy committee said that strong growth in manufacturing and service industry would provide some relief by acknowledging the impact of instability in the Middle East and North Africa through raised risks and pushed up oil prices.
The committee also projects exchange rate volatility as inflation is expected to rise to 6 percent in June this year from 2.6 percent in February.
Kanimba said: “In consultation with the Ministry of Finance, the best collective judgment of the committee is that chances of inflation being above the target of 6 and below or 8 percent is not bad for a developing country like Rwanda.”
The bank held its key rate at a record low of 6 percent June last year in line with the expected unwinding of the economic stimulus package by the Government.
The Governor said that their policy stance has not yet trickled to consumers, adding that most bankers would want to study the market carefully for at least a couple of months.