(Bloomberg) —
Rwanda’s central bank will likely keep its key interest rate on hold on Thursday as it expects inflation to remain within target despite emerging food price pressures.
Annual inflation accelerated to a 15-month high of 4.3% in January from 1.9% the previous month as the cost of food surged, according to the nation’s statistics agency. That took the inflation rate closer to the National Bank of Rwanda’s medium-term target of 5% within a band of 2% to 8%.
“For now, we still project inflation to be 5.4% this year,” central bank Governor John Rwangombwa said in an interview from the Rwandan capital Kigali.
The food and non-alcoholic beverages index climbed 4.5% in January, indicating that the gains from a bumper farm harvest that muted price-growth last year may have ended.
The monetary policy committee is scheduled to review the benchmark interest rate this week, after low inflation that was supply-side driven helped keep borrowing costs at a record low of 4.5% all of last year.
“We didn’t lower our policy rate to try push inflation up because we could see it linked to supply,” Rwangombwa said. “It was over production in agriculture and that was smoothening itself out at the end of the year.”
Rwanda’s economy is forecast to expand 7.2% this year after an estimated growth of 10% in 2021, according to the World Bank, which attributed the rebound partly to robust fiscal stimulus and accommodative monetary policy.
Other interview highlights:
- Climate change will play a “big role” in Rwanda’s monetary policy formulation because farm-produce forecasts influence inflation, Rwangombwa said. The “next step is to see if these weather patterns that seem to be changing are going to have a lasting impact on the agricultural seasons.”
- In the medium term, the central bank plans to add labor statistics to the economic data it looks at while reviewing interest rates, the governor said. The International Monetary Fund warned last month that the “Covid-19 pandemic has raised unemployment and poverty in Rwanda, which risks reversing hard-won gains from the past decades.”
- Rwanda has set up a committee to study digital currencies, and may engage an external consultant. The government will decide on a way forward after about a year, Rwangombwa said.
- Rwanda has started studying what it needs to do to promote environment, social and governance or ESG best-practices within the financial industry.
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