Central Bank confident on economic recovery

The Central Bank has reassured on economic recovery following the 2020 recession which was Rwanda’s first since 1994. The recovery is driven by sectors such as manufacturing, construction and agriculture which have a trickle-down effect across the entire country allowing resumption of activity. In 2020, Rwanda’s economy contracted by 3.4 per cent as a result of the covid-19 pandemic and measures to curb it. Following the Monetary Policy Committee (MPC) of the Central Bank chaired by Governor John Rwangombwa, the committee exuded confidence on Economic recovery citing agriculture, industry and manufacturing as key sectors. “The recovery in the first quarter of 2021 was mainly driven by a faster recovery in the agriculture sector... The recovery is expected to continue at a higher pace, as evidenced by the Composite Index of Economic Activities - a high frequency economic indicator - which rose by 32.4 per cent in 2021Q2 from 12.7 per cent in 2021Q1,” the committee noted. Speaking to The New Times after the meeting, Rwangombwa said that they project recovery across the year buoyed by sectors such as Manufacturing, Construction, telecommunication services and financial services as well as the agriculture sector. Growth of credit to the private sector was another indicator of the expected recovery. In the second quarter of 2021, outstanding credit to the private sector grew by 19.1per cent from 14.4 per cent. “This growth was driven by new authorized credit disbursed during that period and other economic policy support measures,” the committee noted. “Credit to the private sector is a key driver of economic activity. The growth in credit is a key indicator. We saw credit to trade, manufacturing among others,” Rwangombwa added. With the increased lending to the private sector, local SMEs and businesses are in a better position to spend consequently creating jobs and taking on suppliers which is expected to drive economic recovery. As the economy recovers, inflation is expected to remain low throughout the year which means that household expenditure will remain relatively stable. High inflation would mean spending more in household expenditure. “In the second quarter of 2021, headline inflation decelerated to 0.7 per cent from 2.1per cent recorded in 2021Q1. The current low inflation environment is driven by good agricultural production in season A and B 2021 that moderated food prices. This low inflation also reflects the base effect from transport prices in addition to subdued pressures from economic activities,” the committee noted. Headline inflation is projected at 0.7 per cent in 2021. In 2021, the foreign exchange market is expected to remain stable with the Franc as of July depreciating by 1.80 per cent against the American Dollar. This was due to recovery of exports which is expected to continue, moderate import bill and adequate reserves Considering that inflation is projected to evolve below 2.0 percent in 2021 before rising to around 5.0 percent in 2022, the Central Bank decided to maintain an accommodative monetary policy stance by keeping the Key Repo Rate at 4.5 percent to continue supporting the economic recovery efforts. Maintained its key repo rate at 4.5 per cent, is a signal to encourage continued lending to the private sector by banks to support economic recovery following the Covid-19 pandemic. The key repo rate is the maximum rate at which commercial banks invest their money at the central bank. Keeping it low makes it ideal for banks to lend to the private sector as opposed to investing it with the Central Bank. The Rwandan economy is projected to grow by 5.1 per cent in 2021.

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Central Bank confident on economic recovery