The Monetary Policy Committee (MPC) of the National Bank of Rwanda (NBR) undertakes the fourth review of its monetary policy stance in 2023 on the back of sluggish global recovery, elevated inflation feeding into the tight monetary policy stance amongst major central banks, and evolving geopolitical risks in Europe and the Middle East.
The MPC’s tight monetary policy stance since February 2022 remains appropriate and supportive of the Rwanda’s economy’s emergent recovery.
The monetary policy stance acknowledges the long transmission lags, implying that further policy adjustment requires an assessment of the extent of effect of the recent past decisions
Under current circumstances, there is no scope to adjust monetary policy towards accommodation. However further tightening would only be triggered by clear evidence of second-round inflation effects of the risks emanating from concerns around food supply, continued exchange rate depreciation with a possibility of stronger passthrough effect, and a blurry oil prices outlook.
The tight monetary policy has a role in steering the economy to a sustained recovery. The role is complementary to sector level policies as well as a slower pace of fiscal consolidation in the short run that is considered necessary to support recovery generally, and specifically from climate-related challenges.
Although lending rates have marginally increased as monetary policy remains tight, they have generally been sticky. With a comfortable spread between the lending rate and less risky government securities, and given the low level of Non-Performing Loans (NPLs), banks are sufficiently incentivized to increase lending to the private sector. Therefore, the market outturn corresponding to the current monetary policy stance allows banks to play a role in entrenching the economy’s emergent recovery.
The MPC’s careful policy calibration is key to entrenching its policy objective of maintaining price stability. The simultaneity of domestic and external imbalances characterizes the state of play that the NBR has to navigate