On November 20, 2024, the Monetary Policy Committee (MPC) met to decide the Central Bank Rate (CBR) for the next quarter.
As anticipated, inflation in the third quarter of 2024 remained within the target range of 2 to 8 percent. This outcome was due to improved domestic agricultural production, prior monetary policy measures by the NBR, government initiatives to ease price pressures, and declining global prices for key commodities, which reduced imported inflation in the past few quarters.
Inflation projections for 2025 have been slightly adjusted upward to account for the potential impact of delayed rainfall during the ongoing Season A, which may affect the harvest of certain crops. However, inflation is expected to remain within the target range averaging around 4.6 percent in 2024 and 5.8 percent in 2025.
Nevertheless, these projections remain subject to upward inflationary risks, including heightened global geopolitical tensions. Should these risks materialize, they could drive international commodity prices higher than currently anticipated and negatively affect domestic inflation.
Based on the current forecasts, the MPC maintained the CBR at 6.5 percent, a level considered adequate to keep inflation within the target range.
Inflation is expected to remain within the target range in 2024 and 2025
In 2024Q3, headline inflation dropped to 4.1 percent from 5.1 percent in the previous quarter.
This reduction was driven by the eased pressures in core inflation, which fell to 5.3 percent from 6.4 percent and fresh food inflation, which dropped to 0.2 percent from 1.6 percent.
These declines offset the slight increase in energy inflation to 5.0 percent from 4.6 percent.
The drop in core inflation was mainly due to the decrease in core food inflation, which compensates for the increase observed in core housing and education inflation. The observed moderation in fresh food inflation mainly resulted from the base effect of higher vegetable prices recorded last year in the same period, coupled with a good supply.
Conversely, energy inflation rose to 5.0 percent from 4.6 percent in 2024Q2, reflecting an increase in solid fuel inflation, particularly for charcoal.
The medium-term outlook indicates moderate inflationary pressures on core and energy components, while food inflation has been slightly revised upward in the near term, reflecting delayed rainfall observed during the planting stage of Season A.
However, overall pressures on food prices will remain moderate since global food prices are expected to continue declining. Therefore, headline inflation, which is currently standing at 3.8 percent in October. is projected to remain within the target range, averaging around 4.6 percent in 2024 and 5.8 percent in 2025.
The domestic economy continues to demonstrate robust growth
Rwanda’s economic performance remained strong over the first two quarters of 2024, achieving an average growth rate of 9.8 percent. This robust growth was broad-based, with both the industry and services sectors experiencing double-digit expansion, while agriculture rebounded from the climate shocks of the previous year.
High-frequency indicators, such as the Composite Index of Economic Activity (CIEA). suggest that this growth momentum will continue into the third quarter. The CIEA grew by 23.0 percent year-on-year in the third quarter of 2024. Strong performances in trade, transport, financial services, manufacturing, and construction drove growth in the services and industry sectors. However, the agriculture sector is expected to show moderate growth due to a modest harvest of Season B, after a very good performance of Season A.
Rwanda’s trade deficit has expanded despite strong export growth
Merchandise exports increased by 13.5 percent, primarily driven by a strong performance in coffee and minerals, bolstered by rising prices, as well as gains in manufacturing exports and fuel re-exports. At the same time, merchandise imports grew by 8.5 percent, reflecting robust demand for processed food items such as rice and cooking oil, construction materials, motor vehicles and petroleum products. Consequently, the trade deficit widened by 5.7 percent in the third quarter of 2024.
The pressure on the foreign exchange market is lower compared to last year
In the third quarter of 2024, the widening current account deficit exerted pressure on the exchange rate of the Rwandan franc (FRW) against major currencies. However, this pressure was partially offset by an increase in remittances and service exports. As of the end of September 2024, the Rwandan franc depreciated by 6.5 percent against the US dollar compared to December 2023, lower than 13.5 percent recorded in the corresponding period last year.
Nonetheless, foreign reserves coverage remains adequate and is projected to stay above the four-month benchmark in the medium term.
The Interbank interest rate followed the trend set by the central bank rate
The interbank rate decreased to an average of 7.26 percent in the third quarter of 2024, down 73 basis points from 7.99 percent in the corresponding period last year, reflecting a cumulative 100-basis point reduction in the central bank rate in May and August 2024. The average deposit interest rate rose by 78 basis points to 10.36 percent, reflecting a higher share of long-term deposits, while the average lending rate increased slightly by 13 basis points to 16.06 percent, driven by a higher proportion of large short-term loans, which typically carry higher interest rates.
MPC decision
The Monetary Policy Committee has maintained the central bank rate at 6.5 percent, a level considered adequate to keep inflation within the target range, with forecasts standing at around 4.6 percent in 2024 and 5.8 percent in 2025.
The MPC will continue to closely monitor potential risks that may challenge the stable inflation outlook. Should such risks emerge and threaten price stability, the committee stands ready to adjust monetary policy to ensure inflation remains within the 2 to 8 percent target range. (End)