Rwanda Holds Key Rate to Bolster Growth Amid Donor Aid Cuts

Rwanda left its key lending rate unchanged for a third meeting to help support an economy under pressure from the suspension and delay of foreign aid.

The policy rate remains at 7.5 percent, where it’s stood since May, National Bank of Rwanda Governor Claver Gatete told reporters today in the capital, Kigali.

International oil prices are stabilizing, regional inflation has slowed and “there is no pressure on foodstuffs in the region, so we decided to keep the benchmark interest rate unchanged,” he said.

Rwanda may cut its 2013 economic growth forecast to as low as 6 percent, from 7.5 percent, after a United Nations group of experts accused the country of backing the insurgent M23 group in eastern Congo, prompting Western donors to withhold aid. Rwandan President Paul Kagame denies any involvement. External support accounts for about 40 percent of Rwanda’s planned spending in the current financial year through June 2013.

The fallout from the allegations also forced Rwanda to postpone plans to issue its maiden dollar-denominated foreign bond because the perception of increased political risk causes investors to demand higher yields, Gatete said on Dec. 5.

Rwanda is rebuilding its economy after about 800,000 people, or more than a 10th of its population, were killed in a 1994 genocide when ethnic Hutu militias slaughtered minority Tutsis and moderate Hutus over a 100-day period.

The country’s expansion is on track to “surpass” 7.7 percent this year, Gatete said. Still, a poor economic backdrop in Europe may further undermine Rwanda’s growth next year as it may damage the main sources of the country’s foreign-exchange earnings including tourism, coffee and tea exports, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE