Central Bank of Rwanda to alter monetary policy from Jan 2019

Central Bank of Rwanda, which is called National Bank of Rwanda, declared on December 20 that it is all set to transition into a new monetary policy framework from January next year. The purpose of taking this decision is to enhance the security of financial sector against negative effects of economic volatilities.

The National Bank of Rwanda will move to a price-based monetary-policy framework from the current monetary-targeting regime in order to develop a money market and enable economic modeling and forecasting. According to Xinhua, the renowned Rwandan accountant, John Rwangombwa, who is the current governor of National Bank of Rwanda, made the declaration at a news conference in the capital city Kigali.

"While the price stability achieved under the monetary targeting regime is commendable, the ongoing economic transformation and financial sector developments are posing new challenges that may weaken the link between inflation and monetary aggregates," John Rwangombwa opined.

The central bank has undertaken steps to put in place the necessary conditions for the use of price-based monetary-policy framework, he said. According to Rwangombwa, under the current monetary-targeting regime, the central bank managed to keep inflation low and stable, averaging 6.1 percent from 1997 to 2017, and 1.4 percent during the first 11 months of 2018. The banking and insurance sectors have evolved significantly with regard to size, risks and complexity, he said, adding that developments in the financial system have made interest rates more important in the decision-making process of economic actors.

The governor also announced the central bank set out more stringent capital requirements for financial-services companies where commercial banks will need 20 billion Rwandan francs (about 23 million U.S. dollars) of minimum required paid-up capital, four times the current requirement of 5 billion francs, and development bank lenders will need 50 billion francs of minimum required paid-up capital. On the other hand, the financial institutions will be given five years to meet the requirements under the new rules.