Rwanda to Keep Accommodative Rate Stance Due to Weak Inflation

Rwanda’s central bank plans to maintain an “accommodative” stance on interest rates in the first half of the year as inflation, which is at the weakest in almost three years, is set to remain subdued, Governor John Rwangombwa said.

The central bank cut the benchmark lending rate to a record-low 5.5 percent on Dec. 28 and will decide on policy again in March. Consumer prices rose 0.7 percent from a year earlier in December, the slowest pace since February 2015, compared with a medium-term target of 5 percent. The franc has appreciated 0.8 percent to the dollar this year, paring a 3.8 percent decline in 2017.

“We don’t expect to have big pressures on food prices” because of good harvests,
Rwangombwa said Wednesday in an interview in Kigali, the capital. “This eases inflation pressure and we don’t expect to have pressures on the foreign-exchange market.”

Landlocked Rwanda’s economy has expanded an average of more than 7 percent a year since President Paul Kagame took office in 2000, and probably grew 5.2 percent in 2017, according to the International Monetary Fund. Its biggest industries and sources of foreign exchange are tea, coffee, tourism and mining.

This month, the IMF approved the extension of Rwanda’s policy support instrument until Dec. 1, and the East African nation plans to negotiate another one, Rwangombwa said.

It also enabled a $25.8 million disbursement from a standby credit facility, taking the total Rwanda has received to about $207.7 million.

“The standby facility has phased out now -- we don’t expect to negotiate a new one at least in the medium term because we have seen our external sector stabilized and trade balance go down; we are now comfortable with our external balance,” he said.

The government had projected a current-account deficit of 7.6 percent of gross domestic product for this year. The cost of the $765 million Bugesera International Airport that the state is building southeast of Kigali will see this temporarily widen to 10 percent of GDP.

“Depending on conditions, in March we will see if there is need to revise the figure,” he said.

Rwanda has no plans to go to international capital markets, Rwangombwa said. It last raised $400 million in a Eurobond offering in 2013.