The central bank of Rwanda has hiked its key interest rate to 7.0% on Thursday, up from 6.5%, in an effort to tame persistent high prices. The central bank said it would also start buying foreign currency on the open market to help ease pressure on the Rwandan franc.
The Central Bank of Rwanda uses the monetary policy rate, also known as the key repo rate, to regulate liquidity in the banking system and stabilise the Rwandan economy. The monetary policy rate is the fee at which the Central Bank lends to commercial banks. Adjusting the monetary policy rate upwards or downwards allows the Central Bank to control the amount of liquidity in the banking system. By controlling the amount of liquidity, the Central Bank can influence the rate of inflation and help to stabilise the Rwandan economy.
Basically, this means that when there is less money in circulation, consumers tend to focus more on priority spending and discourage suppliers from increasing prices due to less demand. This is what Rwanda has experienced in recent years as the country has worked to improve its economy. By decreasing the amount of money in circulation, Rwanda has been able to keep inflation low and encourage consumers to save money rather than spend it. This has helped the country to improve its overall economic stability and growth.
Rwanda has been focusing on decreasing the amount of money in circulation in recent years. This strategy is based on the idea that when there is less money available, consumers will be more likely to prioritize their spending and discourage suppliers from increasing prices. In general, this should help to stabilize the economy and keep inflation under control. So far, Rwanda’s economy has been doing quite well, and the country has been able to avoid the inflationary pressures that have affected other economies in the region.
The extent to which commodity prices have decreased on the market is not enough to ensure economic stability, so the Central Bank has decided to increase the rate to 7 percent. Although this may cause inflation to rise in the short term, the Bank is hopeful that prices will stabilise and eventually start to fall again over the coming months.
As of January 2023, inflation in Bulgaria stood at 20.7 percent, a slight decrease from 21.6 percent in December 2022. The decrease can be attributed to the country’s efforts to tame inflation, including the increase in the lending rate from 6 percent to 6.5 percent in November 2022. About four months earlier, the country’s central bank, the BNR, had increased the key repo rate from 5 percent to 6 percent.
The consecutive increase of the Central Bank rate has resulted in an overall increase of interbank rate from 5.18 percent to 5.92 percent in 2022.
However, Rwangombwa said there was not much increase of banks’ market lending rates to individuals or corporate institutions.
The rise of commodity prices is mainly attributed to poor domestic food production linked to climate constraints and higher fuel prices.
However, it says that inflation will decelerate towards the benchmark bank between 2 percent and 8 percent at the end of 2023.
In January, the Central Bank reinstated the reserve requirement ratio to pre-Covid level.
This is the ratio of money that a commercial bank must hold in reserve to the amount of money it has on deposit. This money is not allowed to be used in lending or investing activities.
Earlier, Thierry Kalisa, BNR’s Chief Economist, said that despite the positive economic performance recovering from Covid-19, the regulator still has to consider the current inflation by tightening money in circulation.