Rwanda raises interest rate to keep inflation on downward path

KIGALI (Reuters) -Rwanda’s central bank raised its main lending rate by another 50 basis points on Thursday to 7.5% in an effort to maintain a downward inflation trend and indicated that may be the end of its tightening cycle.

Annual inflation peaked at 21.7% in November last year, falling to 11.9% in July, but it is still above the National Bank of Rwanda’s preferred 2%-8% target band.

Geopolitical tensions and the risk of unpredictable climate events that could affect agricultural production were causing the bank to remain cautious, central bank governor John Rwangombwa said.

Inflation is expected to fall below 8% by the end of the year, and to around 5% next year, Rwangombwa said.

“If nothing else happens, or unexpectedly happens, from our projections we don’t expect any further increase (in our policy rate) going forward,” he told a news conference.

The bank began raising interest rates in the current cycle in February 2022, from 4.5%.

Robust economic growth averaging 7.2% per year over the decade to 2019 brought substantial improvements in living standards in the landlocked East African country, and the economy has rebounded well from the contraction induced by the coronavirus pandemic.

Strong output in manufacturing and services have more than offset weaker agricultural production and construction, but rising food prices and strong domestic demand have contributed to persistently high inflation, the International Monetary Fund said in June.

(Reporting by Philbert Girinema; Writing by Hereward Holland; Editing by Alexander Winning and Susan Fenton)