A period of prolonged higher consumer prices, which exacerbated the cost of living and sent many households into painfully cutting their spending and struggling to decide what to spend open, seems to be coming to an end. Headline inflation, which gauges the pace at which consumer prices change, peaked at 21.1 per cent in the fourth quarter of 2022 – the highest in a very long time. However, it’s been on a declining trend since then. By the end of last year, headline inflation had reached 8.9 per cent. Although still above the National Bank of Rwanda (NBR)’s target range of 2-8%, it was a positive sign. It has since then decreased to 5.1 per cent as of the end of this year’s second quarter. This has eased pressures on household incomes, thanks in large part to the central bank’s monetary policy. NBR’s Monetary Policy Committee (MPC) has maintained higher policy rates for a long time as a measure to control inflation. These efforts are paying off and we are now coming to an end of a cycle of higher policy rates. In its latest move, the central bank has decreased the policy rate for the first in a while by 50 basis points, signaling that price pressures are easing. By decreasing the key interest rate, MPC members are sending a key message that they are confident that the stable inflationary trajectory will continue, as a result, credit demand could rise and the economy will likely grow further. Already, the Composite Index of Economic Activities (CIEA) used by the central bank to project economic growth indicates a double-digit growth of 17.9% in the second quarter that just ended. This implies that the economic growth outlook remains stable for this year. However, we still have a task ahead. Depreciation of the Rwandan franc against the United States dollar continues to exert pressures on consumers, depressing finances of businesses, and eating into earnings of major corporations. Although the local currency has eased from the 2023 highs, the franc depreciation against the US dollar continues to remain in double digit territory at 12.6% year-on-year. The Central bank should be kept awake by how fast they can stabilise the situation.
