Growth is steady, but it is being dragged down by the weight of rising inflation, largely due to global factors. That’s what the monetary policy committee guessed, based on its expert reading of economic runes.
At their quarterly meeting, to take the pulse of the economy, the Monetary Policy Committee (MPC) found the pulse weaker than it would like.
The main culprit, which sucks the vitality of not only the Rwandan economy but also the global economy, is inflation which in Rwanda reached a dizzying 12.1%, prompting the bank to raise interest rates. interest of a whole percentage point, from 5 to 6%.
The economy continues to grow, but at 6% it is much slower than in 2021, when it reached 10%. Adding to global pressures, the agricultural sector, an important part of the country’s economy, did not perform as well in the first quarter as expected. The reduced harvest has led to high prices, which in turn add to rising inflation.
All is not gloomy however. Many sectors are continuing the healthy recovery from the effects of Covid-19 on the global economy. The financial sector, which continues to be dominated by banks, remains solid, with well-capitalized banks.
Exports grew by 32.2%, attributed to higher commodity prices. But these increases also translate into a higher import bill, and an increase in the trade deficit to 20.6%.
Since the main cause of high inflation is supply, the bank wanted to use the levers at its disposal to avoid so-called second-round effects, where inflationary pressures spread to all other areas of the economy.
The hope is that higher interest rates and other government measures, such as energy subsidies, will provide some consumer protection against ever-higher prices.
This is a battle in which central banks and governments around the world are engaged. Russia’s war on Ukraine came just as the world’s economies were beginning to recover from the effects of the Covid-19 pandemic.
The war has driven up energy costs, driven up commodity prices and affected supply chains.
The International Monetary Fund (IMF) estimates that global growth is expected to slow from 6.1% in 2021 to 3.6% this year and next.
Inflation is expected to rise by 5.7% in advanced economies and 8.7% in emerging markets and developing economies, 1.8 and 2.8 percentage points higher, respectively, than expected in January last.
In the Eurozone, inflation has fallen from a recent 8.6% in June to 8.9% today. In the United States of America (USA), inflation has slowed to 8.5% from a forty-year high of 9.1% in June, while Britain grapples with a crisis cost of living, with an inflation rate of 9.4%. . Recent projections see it increasing rather than decreasing.
In such a global climate beyond his control, central bank governor John Rwagombwa is drawing the bank’s attention to what it can influence, doing everything in its power to ward off the effects of second round.