The National Bank of Rwanda (BNR) reduced its benchmark interest rate, known as the central bank policy rate, by 50 basis points to 6.5 per cent on Wednesday, August 21, in a move it said will stimulate lending and boost economic activity.

The central bank Governor, John Rwangombwa, announced the development during the release of the quarterly Monetary Policy Committee (MPC) and Financial Stability Committee (FSC), a review of recent global and national economic developments and potential interventions.

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Also known as the key repo rate, this is the rate at which the central bank lends to commercial banks. Adjusting it upwards or downwards allows the regulation of liquidity in the banking system as part of the efforts to stabiliSe the economy.

The rate is used to influence the cost of borrowing money in the economy. By lowering it, the central bank aims to make it cheaper for businesses and individuals to borrow, which can stimulate lending and boost economic activity.

According to the MPC announcement, Rwanda’s inflation rate remains within the central bank target of 2-8 percent and around the medium objective of 5 percent, despite a slight increase to 5.1 per cent from 4.7 in the first quarter of 2024.

Rwangombwa said the increase was mainly because of the core inflation largely driven by transport inflation due to the cost of cars that had increased.

"It is also linked to the depreciation of the Rwandan franc, but you also saw the removal of subsidy on public transport early this year, and same as energy inflation which increased slightly from 2.7 in the first quarter to 4.5 in the second quarter,” he said.

The central bank governor pointed out that the slight increases in core inflation were eased in the overall inflation by continued reduction in food inflation, thanks in large to the bumper harvest in Season A of 2024.

Assuming there will be no heightened risks stemming from the geopolitical crises such as the Russia-Ukraine war, and unprecedented climate change shocks, Rwangombwa said that BNR projects the inflation to remain in the same range.

He also pointed out that the Sub-Saharan region continues to experience a decrease in inflation pressures, despite a few countries such as Zimbabwe, Angola, and Ethiopia whose rates are still high.

The same is true for global inflation which is expected to further decrease year-on- year.

"This is positive to our economy,” he asserted.