Headline inflation in Rwanda is expected to revolve around the central bank policy benchmark of 5 per cent for the remainder of 2024 and 2025, the Governor of the National Bank of Rwanda (NBR), John Rwangombwa, has said.
He was presenting the Monetary Policy and Financial Stability Statement (MPFSS) – an assessment of the economic and financial developments for the first half of 2024 and an outlook for the rest of the year – on September 25.
"Headline inflation moderated to 4.9 per cent in the first half of 2024, down from 17.7 per cent recorded in the first half of 2023,” Rwagombwa said, adding that the deceleration was driven by declines in both core and fresh food inflation.
Headline inflation is a measure of the overall increase in prices for goods and services within an economy.
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Core inflation, which excludes certain volatile components such as food and energy prices, eased due to falling global food prices, while fresh food inflation declined due to increased supply, following a strong agricultural harvest in Season A of 2024.
However, energy inflation – change in prices for energy-related goods and services such as electricity, gasoline, and natural gas – rose in response to higher international oil prices, influencing domestic energy costs over the same period.
Global inflation
Global inflation has also been on a downward trend, averaging 5.9 per cent in 2024 from 6.7 per cent in 2023, and is expected to drop even further to 4.4 per cent in 2025.
These global inflation levels, however, remain above the historical annual average inflation of 3.9 percent observed between 2000 and 2019.
The annual headline inflation in Sub-Saharan Africa (SSA) is projected to remain in double digits but on a declining trend.
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Inflation in SSA moved from 16.2 per cent in 2023 to 15.3 per cent in 2024, influenced by high inflation rates in countries such as Zimbabwe, South Sudan, Sierra Leone, Malawi, Nigeria, Ethiopia, and Angola, where food prices have risen sharply.
Monetary policy interventions
According to the central bank, inflation in Rwanda took an upward trajectory in 2021 and reached a peak of 21.1 per cent in quarter four of 2022. To address the inflationary pressures, NBR tightened its monetary policy.
From November 2023, the Central Bank Rate (CBR) was maintained at 7.5 per cent, following a cumulative increase of 300 basis points since February 2022.
The CBR was reduced to 7 per cent in May 2024 and further cut by 50 basis points to the current rate of 6.5 per cent in August, after inflation stabilised at around 5 per cent.
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"Inflation is expected to remain at 5 per cent for the remainder of the year and into 2025 with all conditions remaining constant,” the Governor noted, adding that climate related challenges and an escalation of global geopolitical tensions are risks to the outlook.
Lending rates
With the tightening of monetary policy in 2023, the interbank rate (the rate of interest charged on short-term loans between banks) rose by 66 basis points in the first half of 2024, averaging 8.21 per cent compared to an average of 7.55 per cent in the same period of 2023.
The interbank rate further decline to 7.32 per cent in August this year, following the easing of the policy rate.
According to the governor, lending rates have shown a slight decrease of 3 basis points between 2023 and 2024, from 15.71 per cent in the first half of 2023 to 15.68 per cent in the same period this year.
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Commenting on the lending rates, Chief Executive Officer of the Bank of Kigali, Diane Karusisi, told The New Times that the rates are expected to stabilise at 15 per cent.
"The 15 per cent as shown by the central bank is an average, but this does not mean that it's the same for all sectors, as some are riskier than others,” Karusisi said, adding that interest rates are driven by customer behaviour as well as competition in the industry.
Deposit rates increased to 10.24 per cent in the first half of 2024 from 9.48 per cent in the same period of 2023.