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The move reflects growing price pressure driven by both domestic and global factors, including higher fuel and transport costs linked to international disruptions.

Explaining the decision in an exclusive interview with IGIHE, Prof. Kasai Ndahiriwe, Director of the Monetary Policy Department at BNR, said the central bank is guided by inflation projections and the need to keep price increases within a sustainable range.

“When the Monetary Policy Committee observes that inflation is increasing or is expected to rise beyond the BNR target range of 2% to 8%, action is taken. Inflation should ideally not exceed 8%,” Prof. Kasai said.

He added that the policy rate is one of the key tools used to manage inflation by influencing the cost of borrowing and overall demand in the economy.

“When goods become more expensive, people tend to buy less. Conversely, when prices are lower, consumption increases,” he explained.

According to him, raising the policy rate is designed to reduce excess money circulation in the economy by making borrowing more expensive for households and businesses.

“When BNR raises the policy rate, it signals banks and borrowers to be more cautious in their spending. It is essentially a message encouraging reduced spending to help control inflation,” he said.

Inflation pressures driving policy decisions

Inflation in Rwanda has shown a steady upward trend since the beginning of 2026, rising from 8.9% in January to 9.2% in February and March, before reaching 13% in April.

Prof. Kasai noted that both domestic conditions and global shocks have contributed to the rise in prices.

“The inflation projections show that the rate will remain above 8% this year and in the early part of next year,” he said.

He pointed to external disruptions, including geopolitical tensions affecting global oil supply routes such as the Strait of Hormuz, which handles a significant share of global petroleum trade.

“Intense global developments, including conflicts affecting oil transport routes, have impacted fuel prices, transport costs, and ultimately inflation,” he added.

The BNR adjusts the policy rate depending on how far inflation is from the target range. In the current environment, inflation has moved significantly above the upper limit of 8%, prompting stronger action.

Prof. Kasai said the size of the increase reflects the severity of inflationary pressure.

“A 1% adjustment reflects the fact that inflation is far from the desired range for the Rwandan economy,” he said, noting that forecasts for 2026 point to inflation levels around 13.9%.

Economic growth remains strong despite inflation

Despite inflationary pressures, Rwanda’s economy continues to show strong performance. Real GDP grew by 9.4% in 2025, while economic activity expanded further in early 2026, with the Composite Index of Economic Activities (CIEA) rising by 16.5% in Q1 2026.

External trade also strengthened, with merchandise exports increasing by 63.2% year-on-year in Q1 2026, driven by higher coffee and mineral export volumes and stronger prices. Non-traditional exports rose by 64.8%, led by processed cooking oil and wheat flour.

Prof. Kasai emphasised that strong growth and high inflation can occur at the same time, and should be assessed separately.

“When you look at the economy of Rwanda, GDP has continued to grow strongly. That is one side,” he said.

For ordinary citizens, the policy rate increase translates into higher borrowing costs as commercial banks adjust their lending rates.

However, BNR maintains that the objective is to stabilise prices and protect purchasing power in the long run.

The central bank expects inflation to gradually return within its target range by around 2027, depending on how global and domestic pressures evolve.

The revelation comes as Rwanda continues efforts to cushion consumers from rising global petroleum prices through fuel subsidies.

On June 5, 2026, the government announced that the retail price of petrol would remain capped at Rwf2,938 per litre, while diesel would retail at no more than Rwf2,927 per litre, up from Rwf2,205 in the previous review.

Despite the increase, the government maintained a subsidy on diesel. Officials said that without the intervention, diesel would have sold at Rwf3,581 per litre.

Speaking during a media briefing on June 7, Minister of Trade and Industry Prudence Sebahizi said Rwanda’s comparatively lower fuel prices attracted buyers from neighbouring countries, resulting in a sharp increase in domestic fuel consumption.

Under normal conditions, Rwanda consumes between 1.2 million and 1.5 million litres of diesel per day, alongside 800,000 to 900,000 litres of petrol.

However, during periods of heightened regional price disparities, daily diesel consumption surged to between 2.5 million and 3 million litres.

“The situation showed that we were effectively subsidising fuel for people beyond our borders when our objective was to support Rwandans,” Sebahizi said.

The increased demand was particularly evident at fuel stations near Rwanda’s borders, where supplies were depleted shortly after opening.

“For about a week, some stations located near border areas ran out of fuel within the first two hours of operation because of customers coming from neighbouring countries,” he said.

According to the minister, consumption levels have since normalised following monitoring and corrective measures.

Data from early June indicate that diesel consumption has returned to pre-crisis levels, while petrol consumption has fallen as consumers adapt to higher prices.

Public transport shift cuts petrol demand

Government officials attributed part of the decline in petrol consumption to growing use of public transport.

Passenger numbers on public buses have increased by approximately 15 percent as more commuters opt to leave private vehicles at home.

Rwanda currently operates 390 buses in its public transport network. The fleet is expected to expand with the addition of 100 buses by the end of 2026 and a further 200 in 2027, bringing the total to nearly 700 buses.

State Minister for Infrastructure Jean de Dieu Uwihanganye said the long-term goal is to expand the fleet to between 1,000 and 1,500 buses while continuing to improve supporting road infrastructure.

“We want public transport to become the preferred mobility option for more people,” Uwihanganye said.

Current petrol consumption has fallen to between 600,000 and 700,000 litres per day, compared with previous levels of up to 900,000 litres. On some days, consumption falls as low as 400,000 litres.

Officials say the trend demonstrates that Rwandans are responding to calls for more efficient fuel use.

Fuel imports remain a major foreign exchange burden

The government also highlighted the broader economic implications of fuel consumption, noting that petroleum imports account for one of the country’s largest foreign currency expenditures.

According to Sebahizi, Rwanda spends more than $700 million annually on petroleum imports, a figure roughly equivalent to the country’s earnings from tourism.

Tourism revenues reached $685 million in 2025, up from $647 million in 2024.

“The foreign currency generated through tourism is almost equal to what we spend on petroleum products each year,” Sebahizi said. “Reducing unnecessary fuel consumption is therefore important for protecting the country’s foreign exchange reserves.”

Sebahizi also addressed concerns over low industrial capacity utilisation, noting that some factories are operating at only about 30 percent of their potential output.

The government is working with manufacturers to increase production and reduce reliance on imported goods, he said.

Officials argue that expanding domestic production and encouraging more efficient energy use will help strengthen Rwanda’s economic resilience amid global market uncertainties.

To improve preparedness for future fuel supply disruptions, Rwanda plans to double its strategic petroleum storage capacity.

The country currently has storage facilities capable of holding 117 million litres of petroleum products. Increasing that capacity would allow Rwanda to maintain fuel supplies for at least six months during periods of severe market volatility, officials said.