The National Bank of Rwanda said Thursday it had reduced its Central Bank Rate to 4.5% in order to enable commercial banks to continue financing the economy amid COVID-19 pandemic.
“Considering that inflation is projected to decelerate in the second half of 2020, owed to a drop in aggregate demand, the Monetary Policy Committee decided to cut the Central Bank Rate from 5.0% to 4.5%,” the bank said in a statement following a Monetary Policy Committee meeting held on Wednesday.
“This decision along with other implemented measures taken in March will support commercial banks to continue financing the economy.”
In March, the central announced introduction of extended lending facility to commercial banks to ease liquidity conditions and mitigate the economic impact of the COVID-19 virus.
The bank said Thursday the measures had yielded immediate impact; whereby 23.4 billion Rwandan francs was injected in the economy through a reduction of the reserve requirement ratio from 5% to 4%.
The bank said a facility of 50 billion Rwandan francs (about $52.1 million) is also available to banks to borrow at central bank rate.
Meanwhile, the bank also said Rwanda’s headline inflation is projected to decelerate due to significant drop in aggregate demand resulting from COVID-19 pandemic.
“Headline inflation is projected to decelerate leading to an average of 6.0% and 1.0% for 2020 and 2021 respectively, pointing out the need for policy measures to support aggregate demand in the economy,” the bank said.
The average quarterly headline inflation for first quarter 2020 stood at 8% mainly attributed to increased food and energy inflation.
The central bank noted that the global economic disruptions caused by the outbreak of COVID-19 pandemic are weighing in on Rwandan economy.
While outstanding credit to the private sector increased by 4.3% in the first quarter 2020, the demand for loans decreased due to decline in economic activities, leading to reduction in new authorized loans by 10.6% in the reporting quarter.
On the external sector, the trade deficit deteriorated by 18.8% in the first quarter of 2020 due to higher imports compared to exports, the bank said.
It however, noted that policy measures being taken by the government aiming at supporting the recovery of the economy after COVID-19 pandemic are expected to contribute to a reduction in trade deficit and maintain a stable foreign exchange market.
Leading indicators suggest that the performance of domestic economy was strong in the first two months of 2020 with the composite index of economic activities growing by 5.1% in the first quarter of 2020.
However, the outbreak of COVID-19 in mid-March 2020 led to significant slowdown mainly in the services and industrial sectors, said the bank.
President Paul Kagame said Monday the country is mobilizing resources to revive the economy from the impact of the COVID-19 epidemic that has grounded economic activities in the country.
Speaking at a virtual press conference Kagame said the projected economic growth for this year has gone down to roughly 3.5% instead of an average of 8%.