Rwanda unexpectedly raises interest rate for first time in a decade

The country’s central bank has made the biggest tightening move in sub-Saharan Africa so far this year.
The National Bank of Rwanda headquarters in Kigali. Image: Thomas Imo/Photothek/Getty Images

The National Bank of Rwanda unexpectedly increased its benchmark interest rate for the first time in almost a decade, with inflation threatening to go above target this year.

The monetary policy committee increased the key rate by half a percentage point to 5%, Governor John Rwangombwa told reporters in the capital, Kigali. It last increased the rate in May 2012.

The central bank expects inflation to average 7.5% this year from about 0.8% in 2021, partly due to an anticipated surge in the cost of food.

The rate jumped to a 15-month high of 4.3% in January from 1.9% the previous month.

Based on projections indicating that inflation “threatens to go above our upper band of 8% by the end of the year,” Rwangombwa said, “the MPC decided to increase the central bank rate.”

Last week, Rwangombwa said in an interview that inflation was seen remaining within target despite an expected increase in food prices. He said then that the consumer price index would rise to around 5.4%.

Rwanda’s central bank has made the biggest tightening move in sub-Saharan Africa so far this year.

South Africa, Eswatini, Lesotho and Namibia have increased rates by 25 basis points.

Read: Reserve Bank raises repo rate to 4%, as expected

The East African nation hiked rates as it tries to balance the need to stem inflation with underpinning the recovery of the economy. The central bank sees economic growth slowing to about 7.2% this year from an estimated 10.2% in 2021.

© 2022 Bloomberg

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