Monetary Policy Framework

The goal of monetary policy is set out in the National Bank of Rwanda (BNR) Law which requires the BNR to conduct monetary policy in a way to deliver price stability and in low inflation environment. Law no 55/2007 of 30/11/2007 governing the Central Bank of Rwanda assigns to the BNR the responsibility of formulating and implementing monetary policy. According to article 5 of the same law, the main missions of the National Bank of Rwanda shall be:

  1. To ensure and maintain price stability;
  2. To enhance and maintain a stable and competitive financial system without any exclusion;
  3. To support Government’s general economic policies, without prejudice to the two missions referred to in Paragraphs 1° and 2° above.

These objectives allow the National Bank of Rwanda to focus on price stability while taking into account of the implications of monetary policy for the whole economic activity and, therefore, price stability is a crucial precondition for sustained economic growth. The National Bank of Rwanda agrees on the importance of low inflation and low inflation expectations. These assist businesses in making sound investment decisions, underpin the creation of jobs, protect the savings of Rwandans and preserve the value of the national currency.

In pursuing the goal of medium-term to long term price stability, the National Bank of Rwanda agrees with the Government on the objective of keeping consumer price inflation low and stable. This formulation allows short-run variation in inflation while preserving a clearly identifiable performance benchmark over time.

To achieve the price stability objective, the BNR currently operates in a flexible monetary targeting framework with the monetary base as operating target, broad money aggregate as an intermediate target and inflation as the ultimate goal. The BNR monitors movements in monetary base on daily basis in line with the targets as set in the annual monetary program.

In that exercise, the BNR uses several policy instruments mainly open market operations, discount rate and reserve requirement.

The key repo rate (policy rate) set by the monetary policy committee is used to signal the stance of monetary policy.