Low food and reducing international fuel prices are expected to keep inflation in check in the coming months, John Rwangombwa, governor of the National Bank of Rwanda (BNR), has said.

Speaking during BNR’s quarterly monetary policy and financial stability news briefing at the central bank’s headquarters, yesterday, Rwangombwa said declining global fuel prices would help boost Rwanda’s economic performance.

"Declining fuel prices lower the cost of transport,” he said.

The central bank has contained pressures on inflation this year as headline inflation stood at 0.7 per cent last month, from 0.2 per cent in September, as a result of declining oil and domestic food prices, sound monetary and fiscal policies and limited inflationary pressures from Rwanda’s trading partners.

The government reduced fuel pump prices to Rwf960 a litre last month, from Rwf1,010. They went on to reduce it further to Rwf895 a litre last week. This was after global oil prices dropped from about $100 a barrel last year to below $60 a barrel this month.

The decline in prices is expected to lower the cost of transporting food from areas of production in the country to market places and also reduce the cost involved in importing the commodity.

The central bank expects headline inflation not to exceed two per cent at the end of the month and to be at around 2.5 per cent by March next year.

Rwangombwa said the reduced fuel prices had also had an impact on the depreciation of Rwanda’s currency this year, which depreciated by 3.5 per cent against the US dollar this month, lower than the five per cent BNR had projected at the beginning of the year.

Last year, the Rwandan franc depreciated by 6.1 per cent against the green buck.

However, despite the positive developments, inflationary pressures may come from uncertainties in international commodity prices and the exchange rate, risks the governor said were not expected to drive inflation to the rooftop.

Rwanda’s total exports increased by 4.9 per cent in value in the first 11 months of this year lower than the 24.5 per cent growth recorded last year.

The slow growth was mainly attributed to mining and tea exports which fetched low international prices and declined by nine and 6.8 per cent, respectively.

On the other hand, Rwandan imports increased by 8.5 per cent in value during the same period this year compared to 2013 which consequently widened the trade deficit by 10.2 per cent and dropped import coverage to 25.1 per cent this year from 26 per cent last year.

In spite of that, Rwangombwa was confident that the economy would subdue the risks and said they had decided to maintain the Key Repo Rate (KRR) at 6.5 per cent in order to support economic financing in the first quarter of 2015.

BNR lowered the KRR in June this year from seven per cent after the economy failed to fare well last year due to reduced lending to the private sector.

To that effect, the governor said the lending rates in most banks had declined from an average of 17.5 per cent in June to 16.7 per cent last month.

Also, new loans to the private sector increased from Rwf418.9 billion between January and November last year, to Rwf595.6 billion in the same period this year.

The developments are expected to enable the financial sector attain its projected growth of 9.2 per cent in 2014 up from eight per cent last year.

This would imply that the services sector is in position to attain its seven per cent growth target this year having grown by 10 per cent in the third quarter of 2014.

Agriculture and industrial sectors are expected to grow by 4.5 and 5.5 per cent, respectively, this year, having grown by six and four per cent, respectively, in the third quarter this year.

Rwanda’s economy grew by 7.8 per cent in the third quarter of this year, up from 2.9 per cent at the end of the same period last year.