Central Bank Governor John Rwangombwa briefs the media on the latest decisions from the Monetary Policy Committee meeting and outcomes of the Financial Stability Committee meeting on November 21. /Courtesy Photo.
Strong growth, inflation within the Central Bank’s range of 2-8%, the rate of interest unchanged, after an earlier reduction, all signs that Rwanda’s economy is performing well, barring the usual caveats of unexpected shocks, both internal and external.
The Bank’s Monetary Policy and Financial Stability committees, gave Rwanda’s economy a clean bill of health, with the strong growth of the first two quarters of this year, averaging 9.8%, being maintained, and the strong growth projected to continue in the third quarter. Overall the economy is expected to grow at 8.3% for this year.
Exports grew by 13.5%, thanks mainly to the increase in traditional exports of coffee, minerals and tea, coupled with a rise in the prices of these commodities. Overall, exports grew by 4% over the last few months. This was however outstripped by growth in imports at 6%.
Although the third quarter did see exports growing more than imports, broadly, imports increased to widen the trade deficit by 5.7%. This in large measure because imports were growing from a stronger base, compared with exports. Over the nine months, the deficit is expected to increase by 8.3%.
The widening deficit continues to put pressure on the exchange markets, pushing the depreciation to 8.39% in the first eleven months of the year, expected to be around 9.4%, for the year, but still much lower than last year’s depreciation.
The all important inflation, has remained within the Bank’s preferred band of between 2-8%, since the fourth quarter of last year, reducing to 4.1% in the third quarter. This reflects the fall in food inflation. Although there was an increase in energy inflation, it was largely a consolidation from last year’s low prices. Overall, inflation is expected to be at 4.6% for this year, projected to 5.8% next year. The projection took into account poorer than expected harvests, due to weather conditions.
As always, the projections are subject to revision, if there are unexpected shocks, both internally and externally. Russia’s war on Ukraine may change to have a greater effect on global economies, similarly the crisis in the Middle East, and of course, unpredictable weather conditions.
The Central Bank maintains its rate at 6.5%, to keep inflation within the target range.
The Financial Stability Committee continued to see the strengthening of the financial sector. The sector’s assets increased by an impressive 23.1%, in the first nine months of this year. The increase was not just within the sector, but also as a percentage of the overall GDP. The banking sector, the biggest subsector, continued its healthy growth.
The Capital Adequacy Ratio (CAR), reserves stipulated by the Central Bank, to allow banks to withstand any unforeseen shocks, stands at 21.2%, above the Central Bank’s required of 15%. Better performing loans indicate increased efficiency in lending. Liquidity is 324%, much higher than the Central Bank’s requirement of 100%.
There is a similar picture within the Microfinance sector, as with the insurance sector, which continues to show growth and stability. The trend continues for all pension schemes, public and private, all of which show growth, and strengthening.
The health of Rwanda’s economy does, of course, need to be looked at from the perspective of the global economy. It is the measure of the extent to which a combination of the Sars-Cov-2 pandemic, and the Russia-Ukraine war, threatened to derail the world’s economies, that effects from both shocks continue to be felt.
While global growth is stabilising, the performance remains subdued, in part because of the actions taken by central banks, to curb runaway inflation. Growth globally is expected to be 3.2%, for both this and next year. Sub Saharan Africa is expected to do better than the rest of the world, growing at 3.6% this year, and projected to grow at 4.2% next year.
The reduction in last year’s commodity prices, including crude oil, is expected to continue. The reduction in crude oil is due to lower demand from economies, and the decision of OPEC (Organisation of Petroleum Exporting Countries) to increase production. There was however, a rise in the price of Rwanda’s traditional exports of coffee and minerals, which boosted the country’s exports.
Global inflation is expected to fall, inline with the reduction in commodity prices, and responding to the measures taken by the world’s central banks, 5.8% this year, falling to 4.3% next year.
Inflation in Sub Saharan Africa, remains high however, 18.1% this year, falling to 12.3% next year. The performance is mainly due to the economies of the continent’s big economies of Angola, Nigeria, Ghana, Ethiopia, not performing as expected.
