EDITORIAL: More measures needed to speed up recovery, spur economic growth

Friday February 25 2022
Editorial central bank

The National Bank of Rwanda on Thursday raised its lending rate for the first time in almost a decade to 5 percent from 4.5 percent to curb rising inflationary pressures. 

It last increased the rate in May 2012. This followed a sharp increase in consumer prices with headline inflation drastically increasing to 4.3 percent in January, up from 1.9 percent in December 2021.

National Bank of Rwanda Governor John Rwangombwa justified the decision of the Monetary Policy Committee indicating that the current rate of inflation “threatens to go above our upper band of 8 percent by the end of the year”

The decision came at a time when already many Rwandans were feeling the pitch of increasing prices of basic household items including food, cooking gas, electricity and
housing. While the central bank expects inflation to remain within target, the current global environment characterised by rising inflation means that there is a real risk that prices, especially of imported products will continue to increase.

And despite a significant increase in exports, imports continue to rise faster, increasing the risk of imported inflation. The rise in demand for imported goods has also seen weakening of the franc, which has a huge impact on inflation due to increased demand for the dollar.

However, the unprecedented conditions created by the spread of the coronavirus and the looming risk of new variants call for exceptional policy responses in a timely manner. 


Besides traditional tools such as interest rate reductions, the National Bank of Rwanda has been pursuing unconventional measures to avoid permanent consequences from a transitory,  but potentially severe, negative shock.

One of the key interventions was instructing commercial banks to restructure loans for distressed borrowers during the pandemic in particular — those from sectors hit hard
by the Covid-19 restrictions, especially tourism and hospitality industry. This coupled with funds made available under the Special Economic Recovery Fund provided the urgently needed first aid to many especially small and medium businesses and helped them to weather the storm.

Recently, the central bank directed commercial banks to revert to normal regulatory guidance in loan restructuring, classification and provision as the worst of the pandemic appears to be over and the economy continues to register strong growth.

However, as the health risk posed by the pandemic is contained, the twin challenge now facing the country’s economic managers is how to contain rising prices without undermining growth prospects. So far, central bank appears to be focused on curbing increasing prices and rightly so. This is because price increases disproportionately affect those at the bottom of the pyramid. 

But central bank must also come up with more strategies to spur recovery and ensure that the economy continues to grow as this will create the much needed economic opportunities for households to thrive and recover fully from the pandemic.