NZAYISENGA ADRIEN

THE IMPACT OF MONETARY POLICY IN CONTROLLING

INFLATION IN RWANDA

A CASE STUDY OF NATIONAL BANK OF RWANDA

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LIST OF SYMBOLS/ABBREVIATIONS/ ACRONONYMS

$ : Dollar

%: Percentage

B.R.B: Royal Bank of Burundi

BBM: Bachelor of Business Management

BNR: Rwanda national bank

CEOs: Chief executive officer

EMS: International Express Mail Service

GDP: Gross domestic product

SMEs: Small and medium enterprises

UK: united Kingdom

UN: United product

US : United States

USA: united States of America

UTB: University of Tourism Technology and Business Studies

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 TABLE OF CONTENTS
DECLARATION..........................................................................Error! Bookmark not defined.

APPROVAL .................................................................................Error! Bookmark not defined.

LIST OF SYMBOLS/ABBREVIATIONS/ ACRONONYMS .................................................. v

LIST OF APPENDICES .............................................................Error! Bookmark not defined.

CHAPTER ONE: .......................................................................................................................... 1

INTRODUCTION AND BACKGROUND TO THE STUDY .................................................. 1

1.1.Introduction ............................................................................................................................... 1

1.2.Background to the study ........................................................................................................... 1

1.3.Statement of the problem .......................................................................................................... 3

1.4. Research objectives .................................................................................................................. 5

1.4.1 General objectives .................................................................................................................. 6

1.4.2 .Specific objectives ................................................................................................................ 6

1.4. Research questions ................................................................................................................... 6

1.5. Significance of study................................................................................................................ 6

1.5.1. To the researcher ................................................................................................................... 6

1.5.2. To the future researchers ....................................................................................................... 6

1.5.3. To the community ................................................................................................................. 6

1.6. Scope of the study .................................................................................................................... 7

1.6.1. Time scope ............................................................................................................................ 7

1.6.2. Geographical scopes ............................................................................................................. 7

1.6.3. Content Scope ....................................................................................................................... 7

1.7. Limitation of the study ............................................................................................................. 7

1.8. Summary of chapter ................................................................................................................. 7

CHAPTER TWO: ........................................................................................................................... 8

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LITERATURE REVIEW ............................................................................................................ 8

2.5. Summary of the chapter ..........................................................Error! Bookmark not defined.

CHAPTER THREE: ................................................................................................................... 23

RESEARCH METHODOLOGY .............................................................................................. 23

3.1. Introduction ............................................................................................................................ 23

3.2. Research design ..................................................................................................................... 23

3.3. Population and Sampling Techniques .................................................................................... 23

3.3.1. Population of the study ....................................................................................................... 23

3.3.2. Sample Selection Techniques ............................................................................................. 23

3.4. Tools for data collection ........................................................................................................ 24

3.4.1. The questionnaire ................................................................................................................ 24

3.4.2. Documentation .................................................................................................................... 24

3.4.3. Interview ..............................................................................Error! Bookmark not defined.

3.5. Sources of data collection ...................................................................................................... 25

3.5.1. Primary data ........................................................................................................................ 25

3.5.2. Secondary data .................................................................................................................... 25

3.5. Data analysis .......................................................................................................................... 25

3.5.1. Data processing ................................................................................................................... 25

3.5.1.1. Editing .............................................................................................................................. 25

3.5.1.2. Tabulation ........................................................................................................................ 26

3.6. Validity and reliability of the research ................................................................................... 26

3.6.1. Validity ............................................................................................................................... 26

3.6.2. Reliability............................................................................................................................ 26

3.7. Ethical consideration .............................................................................................................. 26

3.8. Summary of chapter ............................................................................................................... 27

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REFENCES ................................................................................................................................. 39

APPENDICES ............................................................................................................................. 41

ABSTRACT

This study was investigated on the impact of monetary policy in controlling inflation in Rwanda.
A case study of national bank of Rwanda, the general objective of the study is to find out the

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contribution of monetary policy in controlling inflation in Rwanda, the specific objectives were
to assess the role of monetary policy in controlling inflation in BNR, to find out the challenges
facing BNR as regards to control inflation ad to propose solutions to the challenges facing BNR
as regards to control inflation. The literature review was attained based on the selected
objectives and the data were gotten from the text books, websites, novels and journals. The
research design was descriptive design, the total population was 85. The sample size was 70
gotten by using Morgan table. The findings to the role of monetary policy in controlling inflation
found avoid the counterfeit of money, promote low inflation rates, encourages transparency and
predictability, maintaining Fund stabilization, the challenges facing central bank as regards to
control inflation were limited knowledge, increase of number of people forging money, monetary
policy take time to be implemented ad the solutions to the challenges found credibility of usage
of funds, understandability , cooperate with the government and establishment of new strategy
to implement the monetary policy. The study recommends that, BNR should cooperate with the
government to avoid the increase of prices that leads to the inflation, BNR must provide often
trainings to the employees to enhance the skills and knowledge in controlling inflation, The
research also recommends that there should be always control of how monetary policy applied
to reduce the inflation in the country. The research objectives have been achieved as expected by
the researcher.

Key concepts: Monetary policy, controlling inflation

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 CHAPTER ONE:

INTRODUCTION AND BACKGROUND TO THE STUDY

1.1. Introduction

Monetary policy is referred to as either being expansionary or contractionary. Expansionary

policy is when a monetary authority uses its tools to stimulate the economy. An expansionary
policy increases the total supply of money in the economy more rapidly than usual. It is
traditionally used to try to combat unemployment in a recession by lowering interest rates in the
hope that easy credit will entice businesses into expanding. Also, this increases the aggregate
demand (the overall demand for all goods and services in an economy), which boosts growth as
measured by gross domestic product (GDP).( Eric et al, 2010).

Expansionary monetary policy usually diminishes the value of the currency, thereby decreasing
the exchange rate. The opposite of expansionary monetary policy is contractionary monetary
policy, which slows the rate of growth in the money supply or even shrinks it. This slows
economic growth to prevent inflation. Contractionary monetary policy can lead to increased
unemployment and depressed borrowing and spending by consumers and businesses, which can
eventually result in an economic recession; it should hence be well managed and conducted with
care.( Serihual et al, 2009).

This chapter presents the background of the study, statement of the problem, objectives of the
study, the research questions, scope of the study, significance of the study and limitations of the
study.

1.2. Background to the study

Across the globe the issue of monetary policy was first viewed by the World Bank in 1985, the
goal of attaining sustainable economic growth and development has pre-occupied policy makers
the world over. (Michael et al, 2000).
The economic management technique of monetary policy has therefore been a pursuit of nations
since the formal articulation of how money affects economic aggregates by Adams Smith and the
later proponents the monetary economists. Since the role of monetary policy in influencing
macroeconomic objectives such as economic growth, price stability, balance of payment

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equilibrium, etc. became clear monetary authorities have been saddled with the responsibility of
using monetary policy to grow their economies.(Gerum et al, 2006).

Contractionary policy is intended to slow inflation in order to avoid the resulting distortions &
deterioration of assets values. In short, monetary policy, to a great extent, is the management of
expectations. It rests on the relationship between the rate of interest in an economy i.e. the price
at which money can be borrowed or & total supply of money. The beginning of monetary policy
as such comes from the late 19th century, where it was first used to maintain the gold standard.
Within almost all modern nations, special institutions exist which have the task of executing the
monetary policy & other independently of executive. In general, these institutions are called
Central Bank & often have other responsibilities such as supervising the smooth operation of the
The United States of America evaluated inflation accounting control through monetary policy
measures in USA from 1973 to 2010. Using multiple regression model and the ordinary least
squares estimation techniques, Sauquoit showed that money supply, interest rate and exchange
rate had significant impact on inflation while domestic credit was statistically not significant.
Dammam, et al (2012), attempted to examine the impact of monetary policy on inflation in USA
over the period 1980– 2010 with the aim of measuring the effectiveness of monetary policy in
USA. Using the least squares technique, granger causality they showed that liquidity ratio and
interest rate were the leading monetary policy instruments in combating inflation in USA while
cash reserve ratio, broad money supply and exchange rate were described as being “impotent” in
effective monetary policy decision in USA.(Liwed et al, 2001).
Throughout the Asian continent in a market economy, monetary policy is transmitted above all
through changing yields in financial markets. Until the transmission linkages-from the
instruments of monetary policy to financial markets, and from financial markets to the rest of the
economy have developed, monetary policy as it is generally perceived is unlikely to be very
effective. Conversely, while the general range of market reforms or creations under way are
hardly being undertaken in order to improve the playing field for monetary policy, the better
financial markets function, and the better they become linked to the market decisions of
consumers and investors, the more effective monetary policy will be in getting macroeconomic
results.(Allen et al, 2000)

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In the mid of 1885 to 1990 in England Another reason for emphasizing the shift toward market
economies is that while inflation is bad news under any economic system, it is particularly bad
for a decentralized that is market, system. For this system, with its reliance on the price
mechanism and monetary exchange, monetary stability is essential if market signals are going to
be interpreted efficiently. In other words, to function well, a market economy depends on
confidence in the money that is being used.(Christela et al, 2015).
Bearing in mind perhaps the debates in Africa over the exchange rate system, consideration
needs to be given in this session to the merits of a fixed exchange rate as the anchor for monetary
stability. Such an approach would also entail an early decision to make the currency convertible
in the foreign exchange market (at least for current if not right away for capital account
transactions). Currency convertibility will also get a discussion all to itself later at this
symposium. For monetary policy, the crucial value of relying on a fixed exchange rate anchor is
that it promises to deliver early credibility. It does this through explicitly locking onto a currency
that already enjoys a good reputation for preserving its purchasing power. Credibility would be
enhanced if it is likely that strong trading links will develop with the economy using the currency
in question.(David,2008)

In Rwanda since 2000 the Reliance on the exchange rate (in effect on someone else's monetary
policy) for monetary discipline, and therefore for confidence, means commitment to a fixed
exchange rate that must be seen as unwavering if it is to be credible enough to shape price and
cost decisions. Simply pegging the exchange rate may not by itself provide the necessary
demonstration of commitment. Indeed, can anything less than some sort of monetary union be
seen as "unwavering “And practically speaking, monetary unions or EMS-type arrangements for
monetary policy convergence look a fair way off at this point. Fixing the exchange rate means
that the discipline on domestic costs that is imposed by an unyielding exchange rate dominates
other considerations regarding the role of the exchange rate-particularly the role of shifts in the
nominal exchange rate in facilitating shifts in the real exchange rate (the exchange rate adjusted
for relative rates of inflation) as a way of getting the economy to adjust efficiently to real
economic changes. (Galean et al, 2015)
Rwanda and Burundi common monetary system did not last for long. Political, economic and
psychological factors led to the dissolution of this Union. Rwanda, which was kept apart from
the Leopoldville center of influence, noticed once again that the installation of various common

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institutions in Bujumbura would harm its economic development. The four years of economic
and monetary union were just a failure, each party feeling cheated and blaming each deficiency
on the other party. The divorce between Rwanda and Burundi became a reality when the
economic union was liquidated from 1st January 1964. A liquidation committee was put in place.
Its outcomes were the convention of 18th May 1964 that put an end to the common monetary
rule and to the issuing authority imparted to the B.E.R.B. The National Bank of Rwanda,
established by the Law of 24th April 1964, came into force from 19th May 1964 with the aim of
fulfilling one of its main missions, namely the issuing of currency on the Rwandan territory. The
B.E.R.B. rights and obligations were ex officio transmitted to the Royal Bank of Burundi
(B.R.B.) and to the National Bank of Rwanda (B.N.R.). (Eric et al, 2017).

National bank of Rwanda It is quartered at the National Bank of Rwanda Building, on KN6
Avenue in the central business district of Kigali, the capital and largest city in Rwanda. The
coordinates of the bank's headquarters are 01°56'56.0"S, 30°03'49.0"E (Latitude:-1.948889;
Longitude:30.063611, It is quartered at the National Bank of Rwanda Building, on sixth route
Avenue in the central business district of Kigali, the capital and largest city in Rwanda. The
coordinates of the bank's headquarters are 01°56'56.0"S, 30°03'49.0"E (Latitude:-1.948889;
Longitude 30.063611, The Bank is active in promoting financial inclusion policy and is a leading
member of the Alliance for Financial Inclusion. It is also one of the original 17 regulatory
institutions to make specific national commitments to financial inclusion under the Maya
Declaration during the 2011 Global Policy Forum held in Mexico.(BNR report,2017).

The term "inflation" originally referred to increases in the amount of money in circulation this
was firstly heard in the 16th century. However, most economists today use the term "inflation" to
refer to a rise in the price level. An increase in the money supply may be called monetary
inflation, to distinguish it from rising prices, which may also for clarity be called "price
inflation. Economists generally agree that in the long run, inflation is caused by increases in the
money supply. (Altra, 2004).

Rapid increases in quantity of the money or in the overall money supply (or debasement of
the means of exchange) have occurred in many different societies throughout history, changing
with different forms of money used. For instance, when gold was used as currency, the
government could collect gold coins, melt them down, mix them with other metals such as silver,
copper, or lead, and reissue them at the same nominal value. By diluting the gold with other

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metals, the government could issue more coins without also needing to increase the amount of
gold used to make them. When the cost of each coin is lowered in this way, the government
profits from an increase in seignior age this practice would increase the money supply but at the
same time the relative value of each coin would be lowered. As the relative value of the coins
becomes lower, consumers would need to give more coins in exchange for the same goods and
services as before. (Simon et al, 2012).

1.3. Statement of the problem

Today the issue of inflation has been progressed, when you compare the value of a dollar in the
exchange of domestic currency today and yesterday you find a big difference. As days by the
value of money decreases and this can lead to the country economic fall especially to the balance
of payment, Even if monetary policy is not fully geared to the exchange rate, the balance of
payments outturn in general, and exchange rate pressures in particular, can obviously also play a
role in gauging the degree of demand and inflation pressure, and therefore in indicating a need to
adjust the thrust of monetary policy. (Bertra et al, 2005).
However, as in the case of price movements, in this era also it will be important to make
distinctions-between on the one hand the effects of demand on the balance of payments and the
exchange rate and on the other the effects of influences of a structural nature. Therefore this
study intends to assess the Role of monetary policy in controlling inflation. An increase in the
general level of prices implies a decrease in the purchasing power of the currency. That is, when
the general level of prices rises, each monetary unit buys fewer goods and services. The effect of
inflation is not distributed evenly in the economy, and as a consequence there are hidden costs to
some and benefits to others from this decrease in the purchasing power of money, with inflation,
those segments in society which own physical assets, such as property, stock benefit from the
price/value of their holdings going up, when those who seek to acquire them will need to pay
more for them.

1.4. Research objectives

Objectives of this study are general objectives and specific objectives.

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1.4.1 General objectives

The general objective of the study was to find out the contribution of monetary policy in
controlling inflation in Rwanda

1.4.2. Specific objectives

1. To assess the role of monetary policy in controlling inflation in BNR.

2. To find out the challenges facing BNR as regards to control inflation.

3. To propose solutions to the challenges facing BNR as regards to control inflation.

1.4. Research questions

1. What is the role of monetary policy in controlling inflation in BNR?

2. What are the challenges facing BNR as regards to control inflation?

3. What are solutions to the challenges facing BNR as regards to control inflation?

1.5. Significance of study

1.5.1. To the researcher

This study increased the skills and knowledge of the researcher about monetary policy and will
enable the researcher to obtain a bachelor‟s degree in Business Management.

1.5.2. To the future researchers

This study will stand to serve to the future academicians as a basis for further research and will
be used as reference to academicians who will be involved in the study area.

1.5.3. To the community

This study will allow the community especially all citizens of Rwanda to ensure the role of
monitoring policy in controlling inflation and aim at increasing the national bank reference
material in controlling inflation.

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1.6. Scope of the study

This study was based on Time, geographical and content scope.

1.6.1. Time scope

The study covered a period between 2013-2016.This period is chosen because it is when
Rwandan francs started lost it value compared to the last decade. (BNR report, 2017).

1.6.2. Geographical scope

The research was limited to National bank of Rwanda, in Gasabo district in Kigali city, because
the researcher expects to get information concerning to the conducted topic from BNR. It is
nearest to the researcher, so that this allowed the researcher not spending much time and money
in data collection from the field.

1.6.3. Content Scope

This study was limited to the impact of monetary policy in controlling inflation.

1.7. Limitation of the study

Time and resources constraints faced the researcher as long as was collected the data from the
field. To solve this researcher tried to work a lot hour per day and ask support from relatives.

Slow or non- response: Since the researcher does not know the kind of respondents to deal with,
some of them might fail to respond or delay to do so. The researcher makes convenient
appointments with the respondents and encourages them to respond and give true information in
time.

1.8. Summary of chapter

This first chapter is very vital, because it seek to explain well why the researcher has chosen the
topic, and in brief the main parts of the research, such as the background to the study, the
statement of the problem, the objectives, significance of the study, and the scope of the study.

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 CHAPTER TWO:

LITERATURE REVIEW

2.1. Introduction

The chapter contains the definition of key terms used in the present work. Besides, the relevant
studies and work related to the study have been reviewed.

2.2. Definition of key terms

2.2.1. Monetary policy.

Monetary Policy is the process by which the monetary authority of a country controls the Supply
of money, often targeting a rate of interest for the purpose of promoting economic growth and
stability. The official goals usually include relatively stable prices and low
unemployment.(Davison et al, 2009).

It is referred to as either being expansionary or contractionary, where an expansionary policy

increases the total supply of money in the economy more rapidly than usual, and the
contractionary policy expands the money supply more slowly than usual or even shrinks it.
Expansionary policy is traditionally used to try to combat unemployment in a recession by
lowering interest rates in the hope that ease credit will entice businesses into expanding.
(Adamson,2009).

2.2.2. Inflation.

Inflation is a sustained increase in the general price level of goods and services in an economy
over a period of time. When the price level rises, each unit of currency buys fewer goods and
services; consequently, inflation reflects a reduction in the purchasing power per unit of money a
loss of real value in the medium of exchange and unit of account within the economy. A chief
measure of price inflation is the inflation rate, the annualized percentage change in a
general price index, usually the consumer price index, over time. The opposite of inflation
is deflation. (debrev et al,2015).

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Types of inflation

1. Creeping Inflation

Creeping or mild inflation is when prices rise 3 percent a year or less. According to the Federal
Reserve, when prices increase 2 percent or less it benefits economic growth. This kind of mild
inflation makes consumers expect that prices will keep going up. That boosts demand.
Consumers buy now to beat higher future prices. That's how mild inflation drives economic
expansion. For that reason, the Fed sets 2 percent as its target inflation rate.( Serme, 2010).

2. Walking Inflation

This type of strong, or pernicious, inflation is between 3-10 percent a year. It is harmful to the
economy because it heats up economic growth too fast. People start to buy more than they need,
just to avoid tomorrow's much higher prices. This drives demand even further, so that suppliers
can't keep up. More important, neither can wage. As a result, common goods and services are
priced out of the reach of most people.( Gaspal et al, 2008).

3. Galloping Inflation

When inflation rises to 10 percent or more, it wreaks absolute havoc on the economy. Money
loses value so fast that business and employee income can't keep up with costs and
prices. Foreign investors avoid the country, depriving it of needed capital. The economy
becomes unstable, and government leaders lose credibility. Galloping inflation must be
prevented at all costs.(Louis et al, 2000).

4. Hyperinflation

Hyperinflation is when prices skyrocket more than 50 percent a month. It is very rare. In fact,
most examples of hyperinflation have occurred only when governments printed money to pay for
wars. Examples of hyperinflation include Germany in the 1920s, Zimbabwe in the 2000s, and
America during its civil war. (Devinson et al,2010).

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5. Stagflation

Stagflation is when economic growth is stagnant but there still is price inflation. This seems
contradictory, if not impossible. Why would prices go up when there isn't enough demand to
stoke economic growth? It happened in the 1970s when the United States abandoned the gold
standard. Once the dollar's value was no longer tied to gold, it plummeted. At the same time, the
price of gold skyrocketed. Stagflation didn't end until Federal Reserve Chairman Paul
Volcker raised the fed funds rate to the double-digits. He kept it there long enough to dispel
expectations of further inflation. Because it was such an unusual situation, stagflation probably
won't happen again. ( Beitieus et al, 2001).

6. Core Inflation

The core inflation rate measures rising prices in everything except food and energy. That's
because gas prices tend to escalate every summer. Families use more gas to go on vacation.
Higher gas costs increase the price of food and anything else that has large transportation costs.
The Federal Reserve uses the core inflation rate to guide it in setting monetary policy. The Fed
doesn't want to adjust interest rates every time gas prices go up.(Eric et al, 2015).

7. Deflation

Deflation is the opposite of inflation. It's when prices fall. It's caused when an asset bubble
bursts. That's what happened in housing in 2006. Deflation in housing prices trapped those who
bought their homes in 2005. In fact, the Fed was worried about overall deflation during the
recession. That's because deflation can turn a recession into a depression. During the Great
Depression of 1929, prices dropped 10 percent a year. Once deflation starts, it is harder to stop
than inflation. (Simon et al, 2006).

8. Wage Inflation

Wage inflation is when workers' pay rises faster than the cost of living. This occurs in three
situations. First, is when there is a shortage of workers? Second, is when labor unions negotiate
ever-higher wages, third is when workers effectively control their own pay. A worker shortage
occurs whenever unemployment is below 4 percent. Labor unions negotiated higher pay for auto

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workers in the 1990s. CEOs effectively control their own pay by sitting on many corporate
boards, especially their own. All of these situations created wage inflation. Of course, everyone
thinks their wage increases are justified. But higher wages are one element of cost-push inflation.
That can drive up prices of a company's goods and services.( Aerip et al, 2000).

2.3. Role of monetary policy in controlling inflation

2.3.1. It can bring out the possibility of more investments coming in and consumers
spending more.

In an expansionary monetary policy, where banks are lowering interest rates on loans and
mortgages, more business owners would be encouraged to expand their ventures, as they would
have more available funds to borrow with affordable interest rates. Plus, prices of commodities
would also be lowered, so consumers will have more reasons to purchase more goods. As a
result, businesses would gain more profit while consumers can afford basic commodities,
services and even property. Consumers are, naturally, very important to businesses. The more
money consumers spend at a given company, the better that company tends to perform. For this
reason, it is unsurprising that most investors and businesses pay a great amount of attention to
consumer spending figures and patterns. In fact, the American Association of Individual
Investors lists real GDP as the single most important economic indicator to watch. If consumers
provide fewer revenues for a given business or within a given industry, companies must adjust
by reducing costs, wages, or innovating and introducing newer and better products and services.
Companies that do this most effectively earn higher profits and, if publicly traded, tend to
experience better stock market performance; Aggregate consumption is a component
of aggregate demand. According to the UN, "today‟s consumption is undermining the
environmental resource base. It is exacerbating inequalities. And the dynamics of the
consumption-poverty-inequality-environment nexus are accelerating. If the trends continue
without change not redistributing from high-income to low-income consumers, not shifting
from polluting to cleaner goods and production technologies, not shifting priority from
consumption for conspicuous display to meeting basic needs today‟s problems of consumption
and human development will worsen." Developing countries like India, as they move down the
path of copying the consumption patterns of developed economies, will basically create demands

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that earth will not be able to fulfill. Some economist, talk about putting a price on using earth's
resources which is in addition to the cost of just extracting them. (Habisnon et al,2004).

2.3.2. Allows for the imposition of quantitative easing by the Central Bank
The Federal Reserve can make use of a monetary policy to create or print more money, allowing
them to purchase government bonds from banks and resulting to increased monetary base and
cash reserves in banks. This also means lower interest rates and, eventually, more money for
financial institutions to lend its borrowers. Central banks are responsible for keeping inflation in
check. Before the financial crisis of 2008-09 they managed that by adjusting the interest rate at
which banks borrow overnight. If firms were growing nervous about the future and scaling back
on investment, the central bank would reduce the overnight rate. That would reduce banks'
funding costs and encourage them to make more loans, keeping the economy from falling into
recession. By contrast, if credit and spending were getting out of hand and inflation was rising
then the central bank would raise the interest rate. When the crisis struck, big central banks like
the Fed and the Bank of England slashed their overnight interest-rates to boost the economy. But
even cutting the rate as far as it could go, to almost zero, failed to spark recovery, central banks
therefore began experimenting with other tools to encourage banks to pump money into the
economy. One of them was QE (Eris, 2015)
2.3. 3. It can lead to lower rates of mortgage payments

As monetary policy would lower interest rates, it would also mean lower payments home owners
would be required for the mortgage of their houses, leaving homeowners more money to spend
on other important things. It would also mean that consumers will be able to settle their monthly
payments regularly a win-win situation for creditors, merchandisers and property investors as
well. Mortgage notes are a written promise to repay a specified sum of money plus interest at a
specified rate and length of time to fulfill the promise. While the mortgage deed or contract itself
hypothecates or imposes a lien on the title to real property as security for a loan, the mortgage
note states the amount of debt and the rate of interest, and obligates the borrower, who signs the
note, personally responsible for repayment. In foreclosure proceedings in certain jurisdictions,
borrowers may require the foreclosing party to produce the note as evidence that they are the true
owners of the debt, Mortgage note buyers are companies or investors with the capital to purchase
a mortgage note. If someone is holding a private mortgage, these investors will give cash and

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take over receiving the monthly payments that were being paid to the previous owner. Mortgage
notes for these investors are home loans or mortgages that are secured by real estate. Mortgage
notes could be anything from $10,000 to tens of millions of dollars. Note buyers can buy notes
on nearly any type of property, though owner-occupied single family houses tend to get the best
pricing. A note buyer will offer a certain price based on their perceived risk factors, which
include the amount of equity in the property, the payer's credit, the type and condition of the
property and surrounding area, elements of the note, etc. Most U.S. based note buyers will only
buy in the 50 states, though some do advertise as being able to buy notes in Canada (Nabulya ,
2007).

2.3.4. Promote low inflation rates

One of the biggest perks of monetary policy is that it can help promote stable prices, which are
very helpful in ensuring inflation rates will stay low throughout the country and even the world.
As inflation essentially makes an impact on the way we spend money and how much money is
worth, a low inflation rate would allow us to make the best financial decisions in life without
worrying about prices to drastically rise unexpectedly. Firstly, if inflation is low and stable, firms
will be more confident and optimistic to invest; this will lead to an increase in productive
capacity and enable higher rates of economic growth in the future. If inflation is allowed to
increase because Monetary policy is too lax, there could be an economic boom, but if this
economic growth is above the long run trend rate of growth it is likely to be unsustainable, and
the boom will be followed by a bust (recession). This occurred in the UK in 1991 after
the Lawson boom of the late 1980s. Therefore maintaining low inflation will help avoid cyclical
fluctuations in the economy which can cause negative growth and unemployment. If inflation in
the UK is higher than elsewhere UK goods will become uncompetitive causing a fall in exports
and possibly deterioration in the current account of the balance of payments. Low inflation and
low costs of production enable a country to remain competitive boosting exports and
competitiveness in the long-term. High inflation has other costs such as menu costs; this is the
cost of changing price lists. If inflation is low, we can minimize costs of changing prices lists and
shopping around for lowest prices. (Muhwezi, 2010).

2.3. 5. Promotes political freedom

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Since the central bank can operate separately from the government, this will allow them to make
the best decisions based upon how the economy is performing doing at a certain point in time.
Also, the banks would operate based on hard facts and data, rather than the wants and needs of
certain individuals. Even the Federal Reserve can operate without being exposed to political
influences. Economic freedom or economic liberty is the ability of members of a society to
undertake economic actions. This is a term used in economic and policy debates as well as in
the philosophy of economics. One approach to economic freedom comes from classical
liberal and libertarian traditions emphasizing free markets, free trade, and private property under
free enterprise. Another approach to economic freedom extends the welfare economics study of
individual choice, with greater economic freedom coming from a "larger" (in some technical
sense) set of possible choices. Other conceptions of economic freedom include freedom from
want and the freedom to engage in collective bargaining. The free market viewpoint defines
economic liberty as the freedom to produce trade and consume any goods and services acquired
without the use of force, fraud or theft. This is embodied in the rule of law, property rights and
freedom of contract, and characterized by external and internal openness of the markets, the
protection of property rights and freedom of economic initiative. There are several indices of
economic freedom that attempt to measure free market economic freedom. Empirical studies
based on these rankings have found higher living standards, economic growth, income equality,
less corruption and less political violence to be correlated with higher scores on the country
rankings. It has been argued that the economic freedom indices conflate together unrelated
policies and policy outcomes to conceal negative correlations between economic growth and
economic freedom in some subcomponents (Fera et al, 2010)

2.3.6. Encourages transparency and predictability

A monetary policy would oblige policymakers to make announcements that are believable to
consumers and business owners in terms of the type of policy to be expected in the future. BNR
members have managed to gain financial literacy. This has been so because when members come
together they exchange ideas on money management and investment issues which expand their
knowledge. Sacco make people find investment to be used in starting economic activities, the

14
advantage of investing is the opportunity it provides for building wealth over the long-term.
Diversification is a risk-minimizing concept that spreads money between different types of
investments, which can offset losses in one investment type with gains in another. Traditional
investments include stocks, mutual funds and bonds. These are securities that are issued by
companies and governmental units for the purpose of raising capital. Real estate is another
effective type of investment, as it is generally considered to be safe and conservative. Some
people invest in collectible items, such as rare sports memorabilia and other items such as coins
and stamps. Investing money in stocks, bonds and real estate, however, does come with risk and
is not guaranteed a return. Because of this risk, the returns on these investments are typically
higher than with savings accounts. ( Jacob, 2008).
2.4. Challenges facing central bank as regards to control inflation.

2.4.1. Limited knowledge

Poor education rates influence the economic environment as these rates determine the number of
people mot afraid of picking loan into businesses. Higher interest rates reduce the demand for
credit by consumers and businesses as well. Consumers are therefore not able to demand
commodities produced by businesses, and businesses are not able to borrow in a sustainable way
to expand their operations, due to poor education members are not sure how to recovery loan
with the conditions of high interest. Knowledge goes with a familiarity, awareness, or
understanding of someone or something, such as facts, information, descriptions, or skills, which
is acquired through experience or education by perceiving, discovering, or learning. Knowledge
can refer to a theoretical or practical understanding of a subject. It can be implicit (as with
practical skill or expertise) or explicit (as with the theoretical understanding of a subject); it can
be more or less formal or systematic. In philosophy, the study of knowledge is
called epistemology; the philosopher Plato famously defined knowledge as "justified true belief",
though this definition is now thought by some analytic philosophers, to be problematic because
of the Getter problems while others defend the platonic definition.] However, several definitions
of knowledge and theories to explain it exist. Knowledge acquisition involves
complex cognitive processes: perception, communication, and reasoning; while knowledge is
also said to be related to the capacity of acknowledgment in human being(Ronson,2014).

2.4.2. Does not guarantee economy recovery.

15
Economists who criticize the Federal Reserve on imposing monetary policy argue that, during
recessions, not all consumers would have the confidence to spend and take advantage of low
interest rates, making it a disadvantage. An economic recovery is a period of increasing business
activity signaling the end of a recession. Much like a recession, an economic recovery is not
always easy to recognize until at least several months after it has begun. Economists use a
variety of indicators, including gross domestic product (GDP), inflation, financial
markets and unemployment to analyze the state of the economy and determine whether a
recovery is in progress. The economic cycle, or business cycle, features four phases: expansion,
peak, contraction and trough. Recessions occur during the contractionary phase, though not
every period of contraction is severe enough for designation as a recession. In the United States,
the most widely accepted measure of a recession is two consecutive quarters of GDP decline.
When the economy hits rock bottom in a recession, a trough is signaled. The recovery that
follows coincides with the expansionary phase. Common features of economic recovery and
expansion include GDP growth, stock market gains, declining unemployment and higher
consumer confidence. The final phase, the peak, occurs when the economy has grown all it is
going to grow in a given cycle. Following the peak, a new period of contraction sets in which
may or may not trigger a recession and the economy absorbs the excesses generated during
expansion (wellars, 2011).

2.4. 3. It is not that useful during global recessions.

Proponents of expansionary monetary policy state that even if banks lower interest rates for
consumers to spend more money during a global recession, the export sector would suffer. If this
is the case, export losses would be more than what commercial organizations could earn from
their sales. One of the most significant challenges facing international import/export companies
today is in getting trade finance. The nature of these companies is to do constant and immediate
business. They need to get stock on time, and when it gets stuck at customs, they end up with
cash deficiencies. Unfortunately, banks don‟t supply quick financing. The process takes far too
long. Furthermore, it‟s getting harder in general for small to medium enterprises (SMEs) to get
bank loans. Lately, with economic conditions highly uncertain in the UK, banks are tightening
their pockets. Since import & export companies need to make and receive constant overseas

16
payments, exchange rates are highly significant in their financial planning. Unfortunately,
exchange rates are volatile, and even small fluctuations can make a big difference. When you‟re
dealing in millions, as big corporations are, a few cents one way or another amount to significant
losses, (Davis et al, 2014).When trading with regions that have more volatile currencies, there
can be big changes on a day-to-day basis. In the aftermath of Brexit, the UK has become one of
those regions, with the pound sterling on very uncertain footing for the foreseeable future. This
means that you can import or export the same amount of units in consecutive months, but get
paid significantly different prices for them. When you‟re relying on a certain income for the
continuation of your business, these unexpected swings can cripple you. You might be left in the
lurch, unable to pay suppliers or meet your other expenses. (Jael et al, 2001).

2.4.4. Ability to cut interest rates is not a guarantee.

Though a monetary policy is said to allow banks to enjoy lower interest rates from the Central
Bank when they borrow money, some of them might have the funds, which means that there
would be insufficient funds that people can borrow from them. We already see that the low
interest rate environment has sparked increasing competition from the non-banking sector.
“Shadow banks” an unfortunate label or non-banks have increasingly moved into financial
intermediation in the euro area since the financial crisis. Between the end of 2008 and the fourth
quarter of 2015, non-banks expanded their share of financial assets held by euro area financial
corporations from 42% to 57% .This may suggest an improvement in the transmission of our
monetary policy as these institutions are to some extent more flexible than banks because they
are less strictly regulated and supervised. But at the same time, we need to be mindful that non-
banks are also likely to retrench more rapidly in times of crisis. (Eris et al, 2015). Moreover,
technological innovation and the search for yield in a low-interest environment are likely to
intensify competition for credit and deposit-like savings products. The risk is that this will lead to
lower lending standards, higher leverage and insufficient shock-absorbing buffers. Last but not
least, a protracted phase of very low interest rates weighs heavily on the profitability and
solvency of financial companies which promise minimum nominal returns over the longer term,
e.g. life insurers and pension funds. If this phase lasts for too long, it could challenge the
viability of return guarantee business models. There is evidence that the insurance and pension
sectors have already been moving from guaranteed-return to unit-linked business models. This
shows that the industry is adjusting. We need to monitor such risks, the side effects and the long-
17
term impact of our monetary policy measures carefully. And we need to keep in mind that the
longer our non-standard policy measures remain in place, the more pronounced their side effects
will become. Interest rates have to stay low until the economic recovery in the euro area has
gained sufficient momentum to lift the inflation rate to a level in line with our definition of price
stability. This is, however, taking longer than we had hoped, mainly because the necessary
political changes to make economies more competitive and flexible are lagging behind. The
sooner these reforms are implemented, the stronger and more sustainable the recovery will be
(Gaspel, 2004)
2.4.5. Monetary policy takes time to be implemented.

With things expected to be done immediately in these modern times, implementing a monetary
can certainly take time, unlike other types of policies, such as a fiscal policy, that can help push
more money into the economy faster. According to experts, changes that are made for a
monetary policy might take years before they begin to take place and make changes felt,
especially when it comes to inflation. Against that backdrop, let's shift now to the present. I will
finish today with my current economic outlook and views on monetary policy. Because of the
very deep recession caused by the financial crisis, our recovery has been frustratingly slow. The
economy is still struggling to gain traction, and remains in the grip of headwinds holding back
stronger progress. A stronger expansion is going to require significant support from consumer
spending and business investment, but both consumers and business executives are cautious.
Many households remain focused on paying down their debt and are reluctant to make major
purchases beyond the bare essentials. Moreover, household spending has been limited by very
slow income growth during the past few years. In the business sector, many companies have
been able to record very solid profits, but they have done so by closely controlling costs and
limiting their investments and hiring. Businesses, like households, are leery of expanding their
debt to finance new projects. They have built large cash holdings as a precaution in uncertain
times. Uncertainty seems to be the watchword of the day, specifically uncertainty about Europe
and uncertainty about U.S. fiscal policy. Europe is a large export market for the United States,
and its economic challenges present uncertainty for U.S. exporters and consequently a risk to
U.S. growth prospects. Many countries in Europe are unfortunately experiencing a recession
right now, which is reducing the demand for U.S. exports into those countries. The European
governments have taken significant steps on political and economic reforms, but more work

18
remains to be done, and financial conditions in Europe remain fragile and volatile. (Yvone et al,
2014).

2.4.6. It could discourage businesses to expand.

With this policy, interest rates can still increase, making businesses not willing to expand their
operations, resulting to less production and eventually higher prices. While consumers would not
be able to afford goods and services, it would take a long time for businesses to recover and even
cause them to close up shop. Workers would then lose their jobs. Monetary policy is used in to
help keep economic growth and stability, but there is no guarantee that it would always help
society, considering that it also has its own set if drawbacks. The plan that made sense for you a
year ago isn't necessarily right for you now. Market conditions continually change, so you need
to revisit and update your business plan regularly. See the page in this guide on keeping up with
the market. As your business grows, your strategy needs to evolve to suit your changed
circumstances. For example, your focus is likely to change from winning new customers to
building profitable relationships and maximizing growth with existing customers. Existing
business relationships often have greater potential for profit and can also provide reliable cash
flow. Newer relationships may increase turnover, but the profit margins may be lower, which
may not be sustainable. See the page in this guide on cash flow and financial management. At
the same time, every business needs to be alert to new opportunities. There are obvious risks to
relying solely on existing customers. Diversifying your customer base spreads those risks.
Following the same business model, but bigger, is not the only route to growth. There are other
strategic options such as outsourcing or franchising that might provide better growth
opportunities. It's important not to assume that your current success means that you will
automatically be able to take advantage of these opportunities. Every major move needs planning
in the same way as a new business launch. Watch out for being too opportunistic - ask yourself
whether new ideas suit your strengths and your overall vision of where the business is going.
Bear in mind that every new development brings with it changing risks. It's worth regularly
reviewing the risks you face and developing contingency plans (Brown et al, 2016).

2.5. Solutions to the challenges facing central bank as regards to control inflation.

19
2.3.1. Understandability

Financial statement can be somehow complicated for the uninitiated to understand best user‟s
must be able to understand the information within them. This applied to the format or layout of
the statement, the terms used in the statement and the policies, methods and assumptions utilized
in preparing the statement. For instance, the balance sheet provides the observant with a clear
picture, of the financial condition of the company as a whole. It lists in detail the tangible and
intangible assets that the company owns and owes, while the profit and loss accounts summaries
the income and expenditure of a company in a given period of time. It shows the result of
operation during these accounting periods. Also, it is through the use of financial reports that
users can assess the project of receiving cash as divided or interest and proceeds from sales,
exemption or maturing securities or loans for instance, cash flow statement shows how cash is
predicted to move around at a particular given period of time. It is useful for planning future
expense. It shows whether or not there will be enough cash to carry out the planned activities and
whether or not the cash coming in will be enough to cover the expenses. It is useful in the
determination of the company‟s liquidity in a given period of time.(okype,2005).

2.3.2. Efficient capital markets

Markets are quick and, in the aggregate over time, the prices are right (providing access and
trading costs are low, supply and demand information is readily available, many traders are in
the marketplace, the rule of law holds, business practice standards are enforced and the economy
is stable). Financial markets exist because people use borrowing and lending to adjust their
consumption over time (intertemporal choices). Some risks can be mitigated and some not,
predicting risk is difficult, and informed diversification reduces risk. Insurance protects against
the risk of a major catastrophe by averaging (pooling) the cost across similar at-risk entities, a
larger proportion at high risk increasing the cost to the pool and a larger proportion at low risk
decreasing the cost. (Olakunle,2000)

2.3.3. Credibility of usage of funds

20
Source credibility is the extent to which information is believed based on where it comes
from. This work seeks to enhance the comprehension or understanding of the process by
which published financial statement influences users‟ behavior particularly the investors in
the Nigeria banking sector. This depends on the extent of the users‟ appreciation and
acceptance of the financial statement, which indirectly depends on the users‟ perception of the
source. An individual‟s acceptance of information and ideas is based on who said it and those
associated with it. Therefore, for any published financial statement to be credible for
acceptance, it must be endorsed by a reputable audit firm. Source credibility is very important
to investor‟s reception of the published financial because the authenticity of the financial is
assumed therefore to be the reliance of the investors.(Olekma,2006)

2.5.4. Consistency

Monetary policy should be able to ensure a consistent evaluation of companies working in a

particular industry. It should be able to be consistent in presentation and disclosure of accounting
policies including their method of depreciation. The most important purpose of the annual report
is to get the shareholders informed about the financial status of his company, especially as to its
income and financial position. The usefulness of financial statement to investors is to assist them
to assess the ability of an enterprise to pay divided and interest when due while to the potential
investors, published financial statement is used to decide on the type of security to invest in or
which company to invest in. Conclusively, financial statement of accompany should provide
information about the economic resources of a company, which are the sources of prospective
cash inflows to the company. It should also provide its obligation to transfer economic resources
to others which are the source of prospective cash outflow from the company and its earnings
which are the financial results of its operation.(Adam et al,2008)

2.5.5. Timeliness

Users of monetary policy in reducing inflation make use of current or up to-date information
more than out dated information. Financial statement analysis can reveal the red flags of an
investment opportunity. On the other hand, they can also reveal the strength of a company as
well as the potential profit of investing with a particular company. By their nature, financial
21
statements are retrospective, which means an investor should never look at a single statistic or
metric in making investment decisions. For instance, an actual or potential investor must analyze
the balance sheet, to assess the company‟s asset, liabilities and ownership equity (net worth) at a
particular point in time. Also, he will assess the income statement to know the company‟s
expense income and profit or loss over a specified period of time. He will also assess the cash
flow statement, to find out how the company raised up cash through investors or creditors; how
the cash is used to acquire assets and inventory; how the asset and inventory allow the company
to generate cash to pay for business expenses; and finally how the cash is returned to investors
and creditors. Moreover, the purpose of cash flow analysis is to estimate the amount of money an
investor would receive from an investment, based on future free cash-flow projections for the
company, at least in the short term. (Barth et al, 2004).

2.6.Summary of the Chapter

This chapter covers the definitions of key terms made up the searched topic and the literature
of different authors wrote to the same subject as of the researcher, the data was collected from
books, articles, journals and magazines. The literature was based to the specific objectives
selected by the researcher to be referred.

22
 CHAPTER THREE:

RESEARCH METHODOLOGY

3.1. Introduction

This chapter describes the methodology that was used by the researcher including research
design, population, sample size, sample selection techniques, tools of data collection, research
instruments, data analysis, ethical consideration, validity and reliability of the research.

3.2. Research design

The researcher used descriptive design because intended to show the impact of monetary policy
in controlling inflation and contained qualitative and quantitative data. The study will be done at
National bank of Rwanda(BNR) particularly in Gasabo sector and data will be gathered from all
employees through questionnaires.

3.3. Population and Sampling Techniques

3.3.1. Population of the study

Population of the study is a group of people or individuals who live in a geographical

environment. (Okenyi, 2006:73).

The population of this study was the employees of BNR from department of monetary policy and
during 2013-2016, the period that was used by the researcher to collect data from the field.
According to human resource department the total number of employees in BNR is 84.(Human
resource manager, 2017).

3.3.2. Sample Selection Techniques

The study used purposive and simple random sampling techniques. Purposive was used for those
who predict to get from them correct information observing their criteria and skills. While
simple random sampling technique will be used to the employees in monetary policy department.

3.3.3. Sample size

23
The sample size of this study was determined by using Kreij and Morgan table which is using
probability sampling to choose the sample size that the researcher will use from obtained total
population; this sample size will be used to represent the entire population of this study.

Table 1: Sample size

Type of respondents Total population Sample size

Employees in monetary 78 64
policy department

Managers 7 7

Total 85 70

Source: Field data 2017

3.4. Tools for data collection

In order to collect data, the researcher used questionnaire, documentation and interview.

3.4.1. The questionnaire

The researcher used closed ended questions system to collect data from the respondents because
the respondents were not having sufficient time to respond openly and the Questionnaires issued
only to employees of BNR.

3.4.2. Documentation

The researcher accessed from other related literature to the topic particularly from, newspapers,
books, journal, internet and some articles about savings and economics growth. In this
perspective, the study will be based on the different reports from monetary policy and some of
the books in UTB library.

24
3.5. Sources of data collection

Source of data collection were primary data and secondary data.

3.5.1. Primary data

Primary data was collected in two ways. Firstly, a questionnaire review was done with all the
selected respondents. Secondly, interviews will be conducted to the staff of BNR and these was
taken as the first-hand information.

3.5.2. Secondary data

According to Coffey (1996) Secondary data are data from magazines, handbooks, newspapers
articles and internet sources. Therefore, during this study the researchers obtain secondary data
from lodging magazines and Electronic- Published sources. A number of documents available in
the library, on the Internet and thesis relating to the subject material was consulted for the purpose
of obtaining secondary information relevant to the subject material.

3.5. Data analysis

After processing the data that was collected through review of information from questionnaire
and related literature of other researchers, the data will be analyzed by comparing and
contrasting the literature and proposed objectives and drawing inferences on the literature review
in order to establish the gap in the literature. After collecting data, it classified and presented in
meaning full forms of table frequency percentage to have better insight of research problem.

3.5.1. Data processing

This method helped the researcher to present the collected data in a way which is more
understandable. The researcher processed data in the following way:

3.5.1.1. Editing

Editing is the process of selecting and preparing written, visual, audible, and film media used to
convey information. The editing process can involve correction, condensation, organization, and
many other modifications performed with an intention of producing a correct, consistent,

25
accurate and complete work. (Gaston,2002). Editing helped the researcher to check during the
submission of the questionnaire, if all questions answered in the right way.

3.5.1.2. Tabulation

Tabulation is regarding to the systematic and orderly arrangement of facts and figures in columns
and rows. According to Adamson (2015) “data after edited are put together in some kinds of
tables and may undergo some other forms of statistical analysis”. Tabulation helped the
researcher to put together the collected data in tables to allow them to be statistically well
presented and analysed.

3.6. Validity and reliability of the research

3.6.1. Validity

Validity of the instruments encompasses the entire experimental concept and establishes whether
the results obtained meet all of the requirements of the scientific research method. This was done
before issuing the questionnaires to the respondents in the field and tested twice to find out
whether it yield the same results.

3.6.2. Reliability

Reliability refers to how consistent research procedure or instrument is. It therefore, means
degree of consistency demonstrated in the study. Therefore, the researcher used the same
question to the same respondents and retested again to proof whether same answers obtained.
Reliability refers to the consistency with which a measuring instrument yields a certain result. In
order to ensure reliability in this research, different questionnaires were administered to the
students to retest whether the data are reliable.

3.7. Ethical consideration

To ensure ethical concern, the cited relevant literatures acknowledged. The researcher introduced
with an approved letter from University of Tourism Technology and Business Studies. Before
starting a survey, the researcher has to go to the area for survey, for introducing herself and
presenting a letter for requesting the permission of doing the research within the area.

26
Respondents were free from participating in a survey due to the humble and obedience the
researcher used. This study was done in such a way that it won‟t affect any participants since the
respondents ensured that the study was purely academic and their information provided
paramount and was confidential kept.

3.8. Summary of chapter

This chapter covered the methodology that the researcher expects to use in the study. Based on
research design, study population and sampling, sampling technique, sample size, tools for data
collection, and sources of data, data analysis, validity and reliability of research instruments and
the ethical consideration of the study.

27
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1. Introduction
This chapter was presented the findings from the fields. The study showed the results from the
chosen respondents to be used in this research based on the below research questions mentioned
in chapter one of this study.

The general objective of the study was to find out the contribution of monetary policy in
controlling inflation in Rwanda

The study findings were found based on the following research question:

1. To assess the role of monetary policy in controlling inflation in BNR.

2. To find out the challenges facing BNR as regards to control inflation.

3. To propose solutions to the challenges facing BNR as regards to control inflation.

4.2. Bio Data of Respondents.

4.2.1. Respondents’ gender

The gender of the respondents used in this study were presented to have the information from
both male and female in this study as presented in the following table number 2:

Table2: Characteristics of the respondents by gender

Gender Frequency Percentage%

Male 56 80

Female 14 20

Total 70 100
Source: Field Data 2017

28
The findings from the fields about the gender of the respondents showed in the table above
number 2, the respondents from national bank of Rwanda 80% of the respondents were male
respondents used to answer the study and finally 20% of the respondents were female
respondents answered the questionnaires. The both male and female were used to avoid the
gender bias.

4.2.2. Ages of the respondents

Based on the respondents‟ age the study findings from the respondents based on their age were
presented in the table below:

Table3: Characteristics of the respondents by Age

Age Frequency Percentage%

20-35 31 44

35-50 22 31

Over 50 17 25

Total 70 100
Source: Field Data 2017

Based on the results presented in the table above number 3 to the respondents age mentioned in
this study 44% were represented the bracket group of (20-35), 31% of the respondents were
showed participated in bracket group of (35-50), 25% of the respondents in this study were
showed participated in the group have the age over 50 years old. The study was adopted the
respondents „age to have the data from the respondents with different experience.

4.2.3. Educational level of the respondents

The findings to the educational level of the respondents in this study were used also to have
information needed to the completion of this study as presented in the following table:

Table4: Characteristics of the respondents by educational level

Age Frequency Percentage%

Non-formal 0 0
education

29
 Primary 0 0

Secondary 9 13

Bachelor degree 58 83

Masters 3 4

PHD 0 0

Total 70 100
Source: Field Data 2017

The study respondents based on the educational level of the respondents the findings showed
that there was no used respondents with non-formal education means those who were not
attended school, the study showed that there was no respondents with primary, 13% of the
respondents were completed only secondary school, the majority of the respondents were only
completed bachelor degree on the rate of 83%, while the respondents with masters were 4%,
there was no respondents cooperated with PhD.

4.2.4. Marital status of the Respondents

The study was used the respondents who were single, married and others with no male and
female among the selected respondents from national bank of Rwanda, the present study used
this marital status of the respondents to find the respondents views based how they experienced
life from the single, married and widower because they ideas were quietly different. The
respondents‟ marital status were presented and analysed in the table below:

Table 5: Marital status of the respondents

Status Frequency Percentage%

Single 28 40
Married 33 47
Widow(er) 9 13
Prefer not to say 0 0
Total 70 100
Source: Field Data 2017

30
The results from the table above number 5 to the marital status of the respondents in this study
40% of the respondents were single, 47% of the respondents were married used in this research
study and finally only 13% of the respondents used were widow(er), actually the respondents
with no wives or men were the ones occupied the smallest number compared to other marital
status classes.
4.3. Role of monetary policy in controlling inflation in BNR
Table 6: Role of monetary policy in controlling inflation in BNR

Role of monetary policy Frequency Percentage%

Avoid the counterfeit of money 10 14
promote low inflation rates 9 13
encourages transparency and predictability 10 14
Maintaining Fund stabilization 41 59
Total 70 100
Source: Field Data 2017

According to the table number 6 above to the role of monetary policy in controlling inflation in
BNR 14% of the respondents mentioned that monetary policy contribute to avoid the counterfeit
of money because the forger are afraid of using the forged money because they are afraid of
being punished by the government and central bank rules and regulations, with strong rules and
regulations and some measures taken by the central bank to punish the forger reduce the level of
money in the circulation.

13% of the respondents mentioned that monetary policy help in promote low inflation rates.
Some of the respondents said when the policy that guiding the citizens how they should use the
money in the circulation and how they can establish their own prices that leads to the increase of
inflation in the economy of the country actually government have to establish unchangeable
prices to the reduces the chaos of some seller set their own prices.

14% of the respondents cited the role of encourages transparency and predictability. When the
monetary policy are settled by the central banks are tough the transparency in design the market
prices increases because nobody come set the price as he/she think because they must follow the
price establish by the government and this help in prediction that the money cannot lost it value.

31
The majority of the respondents from BNR said the role of maintaining Fund stabilization on
59%. What monetary policy allow to the central bank mostly is that the stabilisation of fund in
the country found because the central bank regularize the level of the amount of money should
be in the circulation and not allow anybody to destroy this regulations by counterfeit the money
in the country, the stabilization found when the money have value appeared when the consumers
are consuming the commodities.

4.4. Challenges facing central bank as regards to control inflation

Table 7: The challenges facing central bank as regards to control inflation?

Challenges facing the central banks Frequency Percentage%

Limited knowledge 28 40

The rise of prices to the market done by 13 19

some sellers
Increase of number of people forging 17 24
money
Monetary policy take time to be 12 17
implemented
Total 70 100
Source: Field Data 2017

Focused to the table above number 7 about the challenges facing central bank as regards to
control inflation, 40% of the respondents were showed limited knowledge. The central bank
faces the challenge of some of employees who don‟t have the sufficient knowledge about the
monetary policy and how this monetary policy can be used to reduce inflation, this become the
challenge to the central bank because with employees don‟t have the knowledge can their act
increases the level of inflation.
19% of the respondents mentioned the challenge of the rise of prices to the market done by some
sellers. The respondents from BNR said that some of the sellers in many different country
regions increases the prices as they wish sometime but this issue rises the level of inflation in the
country obviously it‟s not easy to know every seller who are not selling the commodities on the

32
right prices established by the government when the central bank is monitoring the inflation this
challenge facing them.
24% of the respondents showed the challenge of increase of number of people forging money.
Today what the government of Rwanda fight against more are the forgers of the money because
the counterfeit including among the activities harming the economy of the country because the
money increasing in the circulation when the people are forging money and also 17% were the
respondents said the challenge of monetary policy take time to be implemented. The respondents
mentioned that when a central bank establish the policies to be followed by the business makers
sometimes cost a lot of energy to make all these persons recognize the situation of respectful the
policies designed by the central bank.
4.5. Solutions to the challenges facing central bank as regards to control inflation
Table 8: The Solutions to the challenges facing central bank as regards to control inflation

Solutions to the problem facing central Frequency Percentage%

bank
Credibility of usage of funds 13 19
Understandability 25 35
Cooperate with the government 18 26
Establishment of new strategy to implement 14 20
the monetary policy
Total 70 100
Source: Field Data 2017

According to the table 6 above about solutions to the challenges facing central bank as regards to
control inflation, 19% of the respondents were showed the solution of credibility of usage of
funds actually this goes with the control made by central bank to ensure whether the cash using
to the market place by different people are not the forged one, this allow in maintaining the funds
stability in the country.

35% showed the solution of understandability to address the challenge of limited knowledge to
some of the employees work in department of controlling inflation, everyone to comprehend
about monetary policy need to be trained first because everyone finds trainings understand what
they don‟t understand.

33
26% mentioned the solution of cooperate with the government to regularize the economy by
establishing the common prices for all seller in the same domain of commerce, the respondents
showed that this can only be the way central bank can used to avoid inflation increases currently
in the country and allow the central bank also to establish the policy to this constraint that can be
followed easily by the citizens and 20% of the respondents also cited the solution of
establishment of new strategy to implement the monetary policy because the central bank facing
the challenge of implementation of monetary policy throughout the country so that handle this
issue central bank have to adopt the new strategies needed to spread easily the established
monetary policy.

The respondents from BNR confirmed that some of these solutions are putted in place by BNR to
solve the challenge but the respondents said that all the stated solution sometimes are not likely
to be used because some need a lot of power to implement, BNR as the government institutions
in charge of monetary policy work with the other state part very closely in order to maintain
strong and vibrant economy.

The respondents said that nowadays the situation of the inflation in Rwanda is increasing
compared to the last decade because there is still the spirit of increasing in the price show to the
market and the price of the dollar keep increasing though this cause many difficulties to the loss
of value of the Rwandan francs as showed by many different from BNR, as the respondents from
BNR showed the current inflation in Rwanda is stand on 7% but the central bank in hand with
the government of Rwanda do the best to see how this number can be lessen because when the
central bank disrespect immediately this number can increase. Compared to how days come the
trends of inflation in Rwanda are currently increased even BNR try to lessen the level of inflation
in the country. The respondents said that among of the tools of monetary policy used by BNR
including the settlement of domestic currency at the higher rate, price of the product for overall
nation and in all sectors of the country and the act of punishment for the counterfeit of funds.

4.5.1. Reasons justifying why BNR have to fight for the issue of inflation
Table 9. The main reasons justifying why BNR have to fight for the issue of inflation

Reasons Frequency Percentage%

Market price regularization 20 29
To stabilize country economy 18 26

34
 To attract foreign investor 32 45
Total 70 100
Source: Field Data 2017

According to the table 9 above show the main reasons justifying why BNR have to fight for the
issue of inflation, 29% of the respondents showed the main reason as the price regularization in
the country for many times the seller change the price in the way they like though the
government wish every product and services to be sold off on the agreed price by the
government and BNR in order to avoid the inflation brought by some businesspersons.

26% of the participants confirmed that all activities of the central bank intends to stabilize the
national economy because when the people work in the central bank are inexperienced or look
down on controlling the inflation the national economy might fall as well that‟s why the central
bank of the country do the best to see how they can reduce inflation in the country and the
respondents said that the central bank must look for the better ways of regularizing the using of
monetary in the country that‟s why they say that even deflation can be problem in the country
because when the price of the product are too low the money are not shown in the circulation.
45% of the respondents showed the reason of attracting foreign investors. The respondents said
that the foreign investors are only shown when they country economic is stable when there is no
war going on there, when there is no inflation in the country actually that what motivate the
people to invest in particular state.

4.5.2. The main factors causes an increase of inflation in the country

Table 10. Main factors causes an increase of inflation in the country

Factors Frequency Percentage%

Balance of payment 40 57
Weak monitory policy designed by the 21 30
central bank
People imitate funds 9 13
Total 70 100
Source: Field Data 2017

35
The respondents showed that the main factors causes an increase of inflation in the country, 57%
of the respondents showed the factors of balance of payment, when there is importation and
exportation at the highest rate if the country doesn‟t regulate this act they find themselves in the
inflation, 30% of the respondents showed the factors of weak monitory policy designed by the
central bank, the respondents said that monetary policy of the central bank include among the
factors that allow the country to fall in the inflation depends on the designed monetary policy in
the nation because these going with how the central bank designed the policies

The respondents confirmed that the monetary policy is the only way help the central to reduce
inflation because with the establishment of the price and the regulation to the uses of money in
the country make some of the citizens to be carefully respect the laws from the central bank, the
respondents said that the monetary policy settled by BNR including the policy for the foreign
currency exchange into the domestic currency, the policy for the money counterfeit , policy for
the reducing and increasing money in the circulation as if the issue of huge or less amount of
money shown to happen in the country

CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

5.1. Introduction

This chapter presented the summary of the findings from the fields, conclusions and
recommendations

5.2. Summary of the findings

In relation to the objective one, the role of monetary policy in controlling inflation in BNR 14%
of the respondents mentioned that monetary policy contribute to avoid the counterfeit of money
because the forger are afraid of using the forged money because they are afraid of being

36
punished by the government and central bank rules and regulations, with strong rules and
regulations and some measures taken by the central bank to punish the forger reduce the level of
money in the circulation, 13% of the respondents mentioned that monetary policy help in
promote low inflation rates, 14% of the respondents cited the role of encourages transparency
and predictability, the majority of the respondents from BNR said the role of maintaining Fund
stabilization.

According to the objective number two, the challenges facing central bank as regards to control
inflation, 40% of the respondents were showed limited knowledge,19% of the respondents
mentioned the challenge of the rise of prices to the market done by some sellers. The respondents
from BNR said that some of the sellers in many different country regions increases the prices as
they wish sometime but this issue rises the level of inflation in the country obviously it‟s not
easy to know every seller who are not selling the commodities on the right prices established by
the government when the central bank is monitoring the inflation this challenge facing them,24%
of the respondents showed the challenge of increase of number of people forging money and also
17% were the respondents said the challenge of monetary policy take time to be implemented.

In relation to the research objective three, the solutions to the challenges facing central bank as
regards to control inflation, 19% of the respondents were showed the solution of credibility of
usage of funds, 35% showed the solution of understandability to address the challenge of limited
knowledge to some of the employees work in department of controlling inflation, 26%
mentioned the solution of cooperate with the government to regularize the economy by
establishing the common prices for all seller in the same domain of commerce, the respondents
showed that this can only be the way central bank can used to avoid inflation increases currently
in the country and allow the central bank also to establish the policy to this constraint that can be
followed easily by the citizens and 20% of the respondents also cited the solution of
establishment of new strategy to implement the monetary policy

37
5.3. Conclusions

The study conclude that all specific objectives have been accomplished based the role of
monetary policy in controlling inflation found avoid the counterfeit of money, promote low
inflation rates, encourages transparency and predictability, maintaining Fund stabilization, the
challenges facing central bank as regards to control inflation were limited knowledge, increase of
number of people forging money, monetary policy take time to be implemented ad the solutions
to the challenges found credibility of usage of funds, understandability , cooperate with the
government and establishment of new strategy to implement the monetary policy.

5.4. Recommendations

The study recommends that, BNR should cooperate with the government to avoid the increase of
prices that leads to the inflation

BNR must provide often trainings to the employees to enhance the skills and knowledge in
controlling inflation.

The research also recommends that there should be always control of how monetary policy
applied to reduce the inflation in the country.

5.5. Areas for further researcher

(1) The impact of inflation and deflation to the economic development

(2) A comparative study of the level of inflation and level of deflation in Rwanda

38
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40
APPENDICES

41
 QUESTIONNAIRE

Appendix 1: ADDRESSED TO THE EMPLOYEES OF BNR

Dear sir / madam,

I am independent researcher am doing a private research on the “Impact of monetary policy in

controlling inflation in Rwanda” as part of the requirement for the fulfillment of community
understanding the impact of monetary policy.

I therefore humbly request you to spare some of your time and fill in this questionnaire. Please
be assured that all information you give here will be strictly for public purposes and will be
treated with great confidentiality.

Thank you for your time.

SECTION A: BIO DATA

Q1. Gender

Sex Male Female

Number of employees

Q2. How old are you?

Range of years 20-35 35-50 50-more

Number of employees

Q3. What is your education level?

Level No formal education Primary Secondary bachelors Masters PHD

Number

Q4. What is your marital status?

Status Single Married Widowed Prefer not

to say

a
 Number

SECTION B: ROLE OF MONETARY POLICY IN CONTROLLING INFLATION IN

BNR

Q5. What is the Role of monetary policy in controlling inflation in BNR?

(a) It can bring out the possibility of more investments coming in and consumers
(b) Spending more.
(c) It allows for the imposition of quantitative easing by the Central Bank.

(d)It can lead to lower rates of mortgage payments.

(e) It can promote low inflation rates.
(f) It promotes political freedom.
(g) It promotes transparency and predictability.
Others, please specify?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

Q6. What is the current level of inflation?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

Q7. What are the trends of inflation in Rwanda from 2013 to 2016?

Decrease

Increase

Q8. What are the tools of monetary policy currently used by BNR?

b
………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

SECTION C: CHALLENGES FACING BNR AS REGARDS TO CONTROL

INFLATION

Q9. What are the Challenges facing central bank as regards to control inflation?

(a) Limited knowledge

(b) It does not guarantee economy recovery.
(c) It is not that useful during global recessions.
(d) Its ability to cut interest rates is not a guarantee.
(e) It can take time to be implemented.
(f) It could discourage businesses to expand.
Others, please specify?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

Q11. What are the Solutions to the challenges facing central bank as regards to control
inflation?

(a) Understandability
(b) Efficient capital markets
(c) Credibility of usage of funds
(d) Consistency
(e) Timeliness
Others, please specify?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

c
Q12. Are all these solutions putting in place by BNR in addressing those challenges?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
……………………………………………………………………………………………………

Q13. State the main reasons justifying why BNR have to fight for the issue of inflation?

(a) To stabilize country economy

(b) To attract foreign investor
(c) Market price regularization

Others, please specify?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

Q14. Is it deflation also a problem to the economy as inflation itself?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………..

Q15. What are the main factors causes an increase of inflation in the country?

(a) People imitate funds

(b) Weak monitory policy designed by the central banks
(c) Balance of payment

Others, please specify?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

Q16. What do you think monetary policy helps in inflation reduction?

d
………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

Q17. What kinds of monetary policy established by BNR?

………………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………………………………….

Thanks for your time.