Governor John Rwan-go-mbwa announced the rise in the key policy rate from 5% to 6% in Rwanda’s capital Kigali. This brings the total number of rate hikes this year to 150 basis points, which is the highest since January 2009.
The Monetary Policy Committee or MPC agreed to raise rates in order to prevent the effects of second-round inflation, and the governor predicted that the move, along with other government initiatives, will help the rate of price growth return to the central bank’s goal range of 2% to 8% in the second half of 2019.
As the price of bread and vegetables increased, Rwanda’s annual urban inflation accelerated to 15.6% in July, its highest level in at least 12 years. The target range set by the central bank has also been violated for four months.
Price pressures in the country of East Africa have increased since Russia’s invasion of Ukraine exacerbated supply chain breakdowns brought on by the pandemic. This has caused monetary policy tightening on a global scale, including in the US, at a level last seen in the 1980s to curb runaway inflation and boost the dollar.
Since March, the Rwandan franc has fallen about 2% versus the dollar and is currently trading at historic lows. The government decreased gasoline taxes to lower prices as a result of high inflation.
In comparison to the May projection of 9.2%, inflation is expected to average 12.1% in 2022.
Rwanda’s rate increase brings it into line with regional rivals South Africa and Egypt, which have raised rates by 100 basis points or more to combat inflation and stop a depreciation of their currencies.
According to the governor, the economy of Rwanda, which derives the majority of its income from tourism and the sale of tea and coffee, is predicted to grow by 6% this year.