The National Bank of Rwanda (BNR) shared insights about the latest economic developments and policy decisions taken for the fourth quarter of the year 2022.

The developments are projected in the Monetary Policy Committee and Financial Stability Statement released on November 15.

Below are some of the key highlights.

1. Inflation is projected to average 13.2 percent at end of 2022

Consumer prices have continued to spike for several months and according to data from the National Institute of Statistics. This is mainly due to global economic shocks and the low domestic agricultural production related to unfavourable weather conditions.

To address the soaring food prices, together with different government subsidies in transport sector and fertilizer inputs, BNR has tightened its lending rate to commercial banks by 50 basis points from 6 percent in August to 6.5 percent in November.

The idea behind the policy is to discourage supplier price hikes by the reduced demand for commodities when there is less money in circulation.

At the end of 2022, BNR projects inflation to average around 13.2 percent and is expected to remain high until the first half of 2023 before decelerating towards the benchmark band of between 2 percent and 8 percent at the end of 2023.

2. Reserve requirement ratio to be reinstated

The regulator has decided to re-establish the commercial reserve requirement ratio back to pre-Covid level of 5 percent effective January 1, 2023. The ratio had been reduced to 4 percent since April 2020 to facilitate economic activities in the wake of the pandemic.

This is the ratio of money that a commercial bank must hold in reserve to the amount of money it has in deposit. This money is not allowed to be used in lending or investing activities.

Explaining the decision, Thierry Kalisa, BNR's Chief Economist, said that despite the positive economic recovery from Covid-19, the regulator still has to consider the current inflation by tightening money in circulation.

3. Rwanda reports growth in exports

With the increased global commodity prices, value addition in minerals, and good performance of domestic manufacturing, Rwanda’s exports rose by 39.9 percent in the third quarter of 2022.

However, the same external factor of commodity prices coupled with the increased demand for intermediate and capital goods has increased the import bill by 38.9 percent.

As a result, the trade deficit –the ratio between exports and imports –has widened by 38.8 percent.

4. Economic growth projection revised to 6.8 percent

BNR has revised Rwanda’s economic growth for 2022 upwards to 6.8 percent from what was initially projected at 6 percent.

This, according to Rwangombwa, is attributed to the strong economic performance in the first half of the year given the equally good performance in the third quarter, he says there are prospects that it might even be revised more upward.

The report indicates that the positive growth outlook in services and industry sectors will outweigh the weak performance in agriculture.

The growth in 2023 is expected to be at 6.2 percent.

5. Late loan repayment in hotels, manufacturing sector

According to BNR, the recovery of economic activities has supported debt service but financial stress remains for borrowers and businesses that have not yet fully recovered from the impact of the pandemic.

Non-performing loans in banks reduced to Rwf161 billion in the first nine months of 2022 from Rwf172 billion in the same period last year. This has mainly been on account of loans written off that amount to Rwf27 billion.

However, loans under watch category –whose repayment period exceeds 90 days – increased from Rwf409 billion in June to Rwf462 billion in September (representing 11.6 percent of total loans).

The increase is mainly attributed to the hotels and manufacturing sector, the latter reflecting financial stress associated with global supply shocks and high increase in energy and other inputs prices.