{"id":444148,"date":"2011-06-20T07:44:47","date_gmt":"2011-06-20T07:44:47","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/06\/20\/can-gatete-steer-rwanda-out-of-inflation\/"},"modified":"2011-06-20T07:44:47","modified_gmt":"2011-06-20T07:44:47","slug":"can-gatete-steer-rwanda-out-of-inflation","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/06\/20\/can-gatete-steer-rwanda-out-of-inflation\/","title":{"rendered":"Can Gatete Steer Rwanda Out of Inflation?"},"content":{"rendered":"
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\"The<\/a><\/p>\n

Berna Namata<\/p>\n

19 June 2011<\/p>\n

\n

Nairobi \u2014 As Claver Gatete, the new governor of the National Bank of Rwanda settles into office, he is faced with the task of crafting new monetary interventions to tame the spiralling cost of living in East Africa’s second smallest economy.<\/p>\n

The IMF has warned that the region needs tighter monetary policies to sustain economic growth, which has largely rebounded to pre-global crisis levels.<\/p>\n

Rwanda’s inflation rate rose to 4.98 per cent in April from 4.11 per cent a month earlier. Mr Gatete told reporters last week he expects inflation to hit 5.7 per cent this month, as the country — which previously enjoyed low and stable inflation levels — joins the ranks of its EAC neighbours which have since January been battling the surging cost of living.<\/p>\n

Analysts say Mr Gatete, former ambassador to the UK, faces a huge task of sustaining the impressive economic reforms pursued by his predecessor, Fran\u00e7ois Kanimba, the longest serving governor.<\/p>\n

Inflation<\/p>\n

“As a small open economy, Rwanda is susceptible to global shocks; at the same time, a shallow financial sector limits the effectiveness of the monetary policy instruments at the disposal of the central bank. For example changes in the NBR’s policy interest rate have only a marginal effect on the economy,” said Gershenson Dmitry, the IMF resident representative to Rwanda,”In a country with deep financial sector, like South Africa, changes in the policy rate have an immediate and lasting impact on the economy. Hence, the key challenge is maintenance of macroeconomic stability in such a difficult environment,” The IMF official cautioned that the new governor will have to quickly craft interventions to deal with inflation resulting from rising world oil prices.<\/p>\n

The IMF envisages 7.5 per cent inflation at the end of the year, higher than in 2010, though he said this is low enough to maintain macroeconomic stability.<\/p>\n

Mr Gatete will also have to ensure an orderly roll-out of the savings and credit co-operatives (Saccos) as government proceeds with the establishment of some 400 Saccos.<\/p>\n

“This policy addresses a well-documented need to improve access to finance, which is limited, especially in the rural areas. The central bank will have to ensure that the new Saccos possess the requisite managerial expertise and adhere to the lending procedures for their successful operation.”<\/p>\n

He is being measured against the high bar set by his predecessor.<\/p>\n

“Mr Kanimba was good and he knew his stuff, there is no doubt — he was one governor who was always on top of things,” said Robert Mathu, executive director of the Capital Markets Authority.<\/p>\n

Mr. Kanimba implemented economic reforms that have enabled Rwanda to enjoy almost a decade of economic progress. For instance, economic growth reached a record high of 11 per cent in 2008, making Rwanda, among the first post-crisis countries in Africa to register double digit growth.<\/p>\n

“The fact that Rwanda suffered very little in the wake of the global financial crisis is testament to prudent macro-economic management by the National Bank of Rwanda together with the Ministry of Finance. During his tenure, inflation has been moderate and the banking sector has been closely supervised,” said Mr Dmitry.<\/p>\n

Mr Mathu said the country’s capital markets have also been largely developed out of the central bank. Rwanda launched its stock exchange, the RSE, in January this year.<\/p>\n

Mr Kanimba, also emphasised deepening the country’s financial sector, with the ratio of private sector credit to GDP increasing six fold to 12 per cent over the last decade.<\/p>\n

To improve access to financial services, he facilitated restructuring of microfinance institutions and growth of Sacccos. Kanimba licensed six new regional banks including Kenya Commercial Bank, EcoBank, Fina Bank Access Bank and Equity Bank.<\/p>\n

The banking sector in Rwanda remains dominated by four commercial banks representing 69.1 per cent of total deposits and 46.7 per cent of loans. Access to banking services is still limited to 20 per cent of the population, hence the need for expansion.<\/p>\n

“If the financial sector is able to attract a bank or financial institution with international exposure, that would be a big milestone; there are investors who cannot invest in this market unless those banks (Barclays, Citi Group, Standard Chartered) are present,” Mr Mathu observed.<\/p>\n

While Mr Kanimba had maintained an accommodative monetary policy including three cuts in the central bank’s policy rate since November 2009 by a cumulative 300 basis points, credit to the private sector has been slow to respond.<\/p>\n

Commercial banks’ lending rates have remained high, while they maintain a cautious credit stance.<\/p>\n

This creates another challenge for the new governor who must find ways of not only increasing lending to meet the target of 19.7 per cent this year from 11.1 per cent in 2010 but also reducing the cost of funds to make borrowing affordable.<\/p>\n

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Berna Namata 19 June 2011 Nairobi \u2014 As Claver Gatete, the new governor of the National Bank of Rwanda settles into office, he is faced with the task of crafting new monetary interventions to tame the spiralling cost of living in East Africa’s second smallest economy. The IMF has warned that the region needs tighter monetary policies to sustain economic growth, which has largely rebounded to pre-global crisis levels. Rwanda’s inflation rate rose to 4.98 per cent in April from 4.11 per cent a month earlier. <\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-444148","post","type-post","status-publish","format-standard"],"yoast_head":"\nCan Gatete Steer Rwanda Out of Inflation? - Ghanamma.com<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ghanamma.com\/2011\/06\/20\/can-gatete-steer-rwanda-out-of-inflation\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Can Gatete Steer Rwanda Out of Inflation? - Ghanamma.com\" \/>\n<meta name=\"twitter:description\" content=\"Berna Namata 19 June 2011 Nairobi \u2014 As Claver Gatete, the new governor of the National Bank of Rwanda settles into office, he is faced with the task of crafting new monetary interventions to tame the spiralling cost of living in East Africa's second smallest economy. 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