Rwanda’s central bank unleashed its biggest interest-rate hike in more than 13 years as runaway inflation caused it to revise its forecasts upwards.
The monetary policy committee (MPC) increased the key policy rate to 6% from 5%, governor John Rwangombwa said in the capital, Kigali. That’s the most since January 2009 and takes the cumulative rate increases for 2022 to 150 basis points.
The MPC decided to hike to avoid second-round inflation effects and expects the increase, together with other measures coming from government, to bring the rate of price growth back within the central bank’s target range of 2% to 8% in the second half of next year, the governor said.
Annual urban inflation in Rwanda quickened to 15.6% in July, its highest level in at least 12 years, as the prices of bread to vegetables surged. It’s also breached the central bank’s target range for four months.
Price pressures in the East Africa nation have been building since Russia’s invasion of Ukraine worsened pandemic-induced breakdowns in supply chains that’s unleashed monetary policy tightening across the world — including in the US — at a scale last seen in the 1980s to cool inflation propelling the dollar higher.
The Rwandan franc has been trading at record lows and weakened almost 2% against the dollar since March. High inflation has prompted the government to cut fuel taxes to rein in prices.
Inflation is projected to average 12.1% in 2022, compared with 9.2% forecast in May.
The hike aligns Rwanda with African peers such as SA and Egypt that have increased rates by 75 basis points or more to subdue inflation and, in some cases, to halt a sell-off in their currencies.
Rwanda’s economy, which earns most of its revenue from tea and coffee exports and tourism, is expected to expand 6% this year, the governor said.
The Rwandan franc declined 0.32% against the dollar on Thursday to trade at 1,034.39 at 3.30pm.
Bloomberg News. More stories like this are available on bloomberg.com
