The recent stress tests conducted by the National Bank of Rwanda (BNR) confirm that the country’s financial sector is sound and stable, and well-positioned to withstand potential shocks to the economy. Stress tests are periodic assessments, particularly among major banks, designed to evaluate their capacity to endure economic disruptions. These include past global events such as the COVID-19 pandemic and the 2008–2009 financial crisis. According to BNR, Rwanda’s financial sector remains well-capitalised, with total assets reaching Rwf13 trillion in 2024, an increase of 20.6 per cent compared to the previous year. Banking sector assets alone grew by 19.1 per cent, reaching Rwf9 trillion over the same period, underscoring the sector’s resilience and continued growth. In an exclusive interview with The New Times Business Editor Julius Bizimungu, BNR’s Chief Economist Thierry Kalisa provided insights into the strength of the financial sector and the Central Bank’s ongoing efforts to combat inflation. The interview has been edited for clarity and brevity. Below are excerpts: Headline inflation declined from 14% in 2023 to 4.8% in 2024, largely attributed to good domestic agriculture performance, easing international commodity prices, and past monetary policy decisions. Which of these factors played the biggest role, and how much of this decline can be credited to monetary policy rather than external conditions? You cannot attribute the decline to one factor. Everything is interconnected. We ended the year 2024 with an average inflation of 4.8 per cent. The mid-point of the target range is 5 per cent; we were very close to that. But we are coming from two years – 2022 and 2023 – where inflation was very high at 14 per cent, way above the target of 2-8 per cent. What we were doing during that period was to do everything to bring inflation down. Not only the Central Bank but other government institutions were involved. Other decisions were taken to mitigate the impact of high inflation on the population, including introducing temporary subsidies on fuel. You have also seen that the Ministry of Agriculture has put efforts to try to improve agricultural production. The Central Bank played its role by gradually increasing the central bank rate to 7 per cent, while other institutions also fulfilled their responsibilities. Together, these efforts contributed to the decline in inflation observed in 2024. Unlike previous years, Season A of 2024 saw strong agricultural production, which led to a drop in food prices. Key staples that heavily influence inflation – such as beans and Irish potatoes – saw price declines at the beginning of the year. This created a favorable base effect that helped bring inflation down. In addition, earlier monetary policy decisions continued to have an impact, particularly on core inflation, which remained stable. Furthermore, the decline in global commodity prices contributed to a reduction in imported inflation. Despite the general decline, inflation rose slightly in early 2025 (6.3% in February from 7.4% in January). Does this signal a potential reversal in inflation trends, or is it a temporary fluctuation? We believe this rise in inflation is temporary and had been anticipated, as we communicated in February. In December 2023, inflation declined rapidly. As a result, when comparing prices year-on-year, especially in January and December, the data showed higher inflation, primarily due to the sharp drop in prices during that period. This is what we refer to as the base effect. However, we expected this effect to be short-lived for several reasons. For instance, there was a higher base effect due to an increase in transport prices in March and April 2024. Since then, those prices have remained relatively stable, meaning their impact on inflation will gradually diminish. As a result, we expect transport and core inflation to ease starting from March and April. Additionally, the upcoming agricultural Season B may further support price stability. Assuming normal rainfall, favorable climate conditions, and a good harvest, we expect food prices to stabilise and begin to decline around May and June. Based on these assumptions, we anticipate inflation will begin to stabilise or decrease around May and June. Our revised average inflation projection for the year now stands at 6.5 per cent. How confident are you in achieving the 6.5% inflation target, especially given the current regional instability and global commodity price uncertainties? We monitor all of these developments as part of our risk assessment framework. While there are ongoing discussions around trade wars, these remain largely at the level of announcements for now – we have yet to see any significant materialisation. What’s particularly interesting to observe is the impact on global commodity prices. As a net importer of several key commodities, a significant global price increase would have implications for us. However, current global trends point in the opposite direction. Since 2023, commodity prices have been declining, and projections suggest they will continue to fall in 2025. Take oil, for example. Prices have been decreasing due to two main factors: sufficient supply from OPEC countries and others like Russia, and weakening global demand—partly driven by the growing adoption of electric vehicles, including in major markets like China. Of course, any sudden shock strong enough to reverse this trend could have an impact, but in our scenarios, the likelihood of a sharp increase in commodity prices remains low. The central bank lowered rates twice in 2024 and has since maintained them. With inflation still above the long-term target, is there a risk that the easing cycle was too aggressive? At what point would you consider tightening again? To put things into perspective, we had an increase of 300 basis points – from 4.5 per cent to 7.5 per cent over two years. Last year, we reduced by one per cent. We went back – from 7.5 per cent to 6.5 per cent. We are trying to see how tight we are. According to our analysis, we are not yet accommodative. We are tight, but less tight than before. We take that into account and we are careful to not be too accommodative especially since inflation is within the band but subject to volatility. What we try to do is when we reduce the rate, it’s in a prudent and conservative way and we follow up to see whether inflation is, in the long term, within the band. The committee could decide to increase the rate but that would be on condition that this trend has changed. The Central Bank indicated that stress tests show that banks and microfinance institutions are stable and can withstand shocks. What scenarios did you look at that proved that the financial system is strong? Normally stress tests are to say, this is what we see, this is what is happening. What if something extraordinary happened or what if we have a shock in an economy that is leading to some people not paying their loans? What will be the impact on banks? We have different scenarios at different levels – from less pessimistic to the most pessimistic. That is, what if something very unlikely happened, what would be the impact on our banking and financial sector? When we do scenarios – scenario one, scenario two, and scenario three, which is the most pessimistic – we see that there are buffers and our financial system is sound and stable. This means that the damage to the system, in terms of banks that may collapse, is limited to the extent that even to the most extreme scenario, which we know is unlikely to happen. There are events that nobody predicts such as the Covid-19 pandemic and the financial crisis. That is why it is important for any economy to have strong buffers – and we do have them – to have a strong system so that if something happens, which we don’t anticipate, then we are ready to face that.
