Rwanda Sees Accommodative Stance as Prudent Ahead of MPC

Kigali, Rwanda, Capital Markets in Africa: The Rwandan central bank’s “accommodative” monetary policy stance is prudent because inflation is expected to remain below the government’s target, Governor John Rwangombwa said ahead of a rate-setting committee meeting next week.

Consumer-price growth in the tea-growing East African nation is expected to remain below the government’s target of 5 percent this year, Rwangombwa said in an interview June 20 in the Tanzanian commercial capital, Dar es Salaam. Rwanda’s MPC is set to announce its latest monetary policy rate decision on June 28.

“Inflation will remain within target,” he said. “We expect an average of about between 4.5 and 5 percent.”

The MPC has maintained the benchmark rate at 6.5 percent since June 2014. The country’s urban inflation rate has remained below 5 percent since November 2013, according to National Institute of Statistics of Rwanda data.

While Rwandan monetary policy remained accommodative throughout 2015, it was tightened in the first quarter of this year, according to the International Monetary Fund.

Rwangombwa said a shortage of foreign exchange caused by lower commodity earnings is unlikely to dent economic growth. Commodity shipments by Rwanda, which exports minerals including tin ore and coltan, fell by a third last year to $149.1 million. Rwanda’s franc has weakened nearly 7 percent against the dollar this year after losing 7.4 percent in 2015.

There are “tight conditions” in the foreign-exchange market linked to commodity-price declines, “but we don’t expect to face a crisis of any kind,” Rwangombwa said. “The markets should expect continued stability.”

International reserves fell to 3.6 months of imports by the end of 2015 from 4.8 months at the end of 2013, according to the government. Rwangombwa projects Rwanda will hold cash sufficient to cover 3.8 months in 2016 and 2017.

The government projects the deficit on the current account, the broadest measure of trade in goods and services, will widen to 16 percent of gross domestic product in 2016 from about 11 percent in previous years, Rwangombwa said in May. The nation’s import costs are surging as the government spends on infrastructure such as roads, railways and a new international airport.

The $7.9-billion economy secured a $204 million IMF standby facility last week to cushion against shocks arising from falling commodity prices or regional and weather-related blows.

Rwanda’s economy recorded one of the fastest growth rates in Africa over the past decade, expanding an average of 7.8 percent annually, according to World Bank data. The first quarter’s expansion of 7.3 percent was higher than expected and put the nation on the road to achieve its full-year projection of 6 percent, Rwangombwa said.

Source: Bloomberg Business News