Changing Weather to Push Rwanda Inflation, Central Bank Says

KIGALI (Capital Markets in Africa) – Changing weather patterns are pushing up food prices and will drive inflation in Rwanda for the first few months of this year, central bank Governor John Rwangombwa said.

Unexpectedly heavy rains in the second half of 2019 caused some crop damage and food inflation reached 23.8% in December, the highest in almost three years.

 “Because of the bad rains we had in the last quarter of 2019 we expect inflation in the first quarter of 2020 to be slightly above our medium-term benchmark of 5%,” Rwangombwa said in an interview Friday in the capital, Kigali. However, the rate will remain inside the target band of 2% to 8%, he said.

The central bank uses the urban inflation rate as the headline indicator that it targets, although the majority of Rwanda’s population of 12 million live in rural areas. Urban inflation reached 6.9% in November, the highest level in more than two years, before slowing to 6.7% in December. The rural inflation rate is more than double that.

Damaged Crops
Heavy rainfall in November and December have damaged bean and Irish potato crops, especially in North Province, but benefited all other major crops and will likely result in an overall above-average harvest, according to the Famine Early Warning Systems Network.

Still, Rwangombwa said climate change is creating a lot of risks.

“We are used to having a short dry season between January and February, but we don’t see it happening now, because we have rain as if it’s a normal rainy season, so this is a bit worrisome,” he said.

While Rwanda is a net importer of food, the central bank doesn’t expect any major additional impact on prices due to the desert-locust plague in Kenya, the worst in 70 years, that’s threatening to spread further into East Africa.

The central bank’s monetary policy committee last cut the key rate in May, to 5%, and has kept it there since. The MPC is preparing for its first meeting of the year early next month and will then determine the inflation outlook for 2020, Rwangombwa said. Economic growth is projected at 8%, “if we don’t get unusual pressures on any of our sectors,” he said.