The past weeks have been characterized by an increase in commodity prices which the National Bank of Rwanda (BNR) has attributed to global inflationary pressures as commodity prices rise. In January, inflation was at 4.3 per cent in comparison to 1.2 per cent in the last quarter of 2021.

Last week, the Central Bank’s Monetary Policy Committee announced the revision of the Key Repo rate from 4.5 per cent to 5 per cent. The rate had remained unchanged since April 2020 and was one of the lowest in the region.

This is expected to signal to banks to tighten lending which will in turn lead to reduction of liquidity consequently curbing inflation.

The New Times’ Collins Mwai caught up with Thierry Kalisa the Chief Economist at the Central Bank who broke down the causes of inflation and possible remedies for the pressure being experienced.

First things first; what is going on with regard to commodity prices? Why are a number of goods getting expensive on the market?

We had very low inflation in 2021, an average of 0.8 per cent, in quarter three, we had a negative inflation actually -0.6 per cent and then 1.2 per cent in Quarter 4. In January it rose to 4.3 per cent. 

There is a mix of different things going on. There is the global scene where there is rising inflation and rising energy and oil prices which end up being imported inflation locally. 

At times, it is delayed in Rwanda when it hits the global economy because of intervention such as regulation and subsidization of fuel and public transport. If that was not the case, inflation would have been much higher.

The key drivers have been energy, cooking oil, gas and food. Overall prices of food have stayed low but have been increasing.

More recently in January, some prices started to go up, we are yet to access the output of season A to fully understand, but when we are looking at products from season A and waiting for season B, prices tend to go up slightly.

Does that imply that the Central Bank has limited control with regard to intervention and remedial measures?

What we do as the Monetary Policy Committee (MPC) is to act to the general level of prices. The way the economic agencies set prices, there are things coming from outside and others from inside. What the MPC has done to raise the Central Bank rate is not to influence inflation now but in 3 or 4 quarters in future. 

We are trying to ensure that it does not pass 8 per cent. By doing that, we are trying to ensure that it continues to support economic recovery and at the same time influence the rising inflation.

We have both imported and domestic cost pressures and given the factors, we think we can have an impact on the pressure of inflation.

Do we have tentative timelines of when the inflationary pressure could start to come down and what exactly are you hoping for?

The best case scenario is addressing the mismatch between supply and demand globally.  This could happen as soon as June-July this year or a bit later. Definitely, it will come down at some point as economies fully recover. The pressure on international prices will come down. 

The question is when exactly.  By the time it comes down, we are doing all possible to ensure it is contained knowing that it will reach a peak which we do not want to surpass 8 per cent. Since it’s still early in the year, it might be too early to know exactly when we get to peak. We are however regularly monitoring to ensure that we put out the best measure to curb it.

By revising the Central Bank rate, it is likely result in reduced liquidity as well as lending appetite. Don’t you think that will affect the economic recovery which is still a priority?

It can co-exist, it’s a matter of what is the appropriate rate.

As you are aware, BNR reduced the Central Bank Rate at the beginning of the pandemic to support the economy. The rate has been at 4.5 per cent since April 2020. 

What we are saying is that we have one of the lowest rates in the region. Had it been higher for instance at 7 per cent that would probably have had a severe effect on access to credit. But at 5 per cent, it still allows access to credit at the same time curbing future inflation pressure.

We are still supporting growth and making sure that we are addressing further inflationary pressure.

We have committee meetings every quarter, we will see the situation, if the pressure is still there, and we will see what the appropriate steps are.

While the Central Bank is making interventions through adjustment of monetary policy, what other interventions do you expect from other public institutions to cushion the public during the turbulence?

While at the Central Bank we are focusing on Monetary Policy, there are different things and roles for other public institutions and ministries across sectors with an approach for different things. 

For instance, when there was a challenge with public transport prices, the Government stepped in and subsidized the costs for fuel prices as well as public transport prices. 

As the central bank we continue to work with different entities and offer our advice. So far, the measures in place have been very impactful.

So far, agriculture is subject to weather conditions, however, there is post-harvest management to ensure that as much value of the produce is retained. We are constantly engaging other stakeholders on ideal steps.

What would you say to anyone losing sleep over what is going on? Does it get better?

We are coming from quite a low base in the previous year, inflation is increasing yes, but it is not worrisome and we are acting now to contain it.

The idea is that when we pass this period, inflationary pressures will go down again. There are other factors that can be positive for inflation, if there is a positive agriculture season. Consumers should understand the global context and know that we are doing all that is possible.