The Bank of the Republic of Burundi presented its monetary policy report for the fourth quarter of 2025 on Thursday, February 26. This presentation was followed by an announcement from its Governor, Edouard Normand Bigendako, regarding a reduction in the key interest rate from 12% to 10%. This decision seems to run counter to logic, given the context of strong inflationary pressure. This economist raises questions.  

In a country like Burundi, lowering the key interest rate when inflation is often a major concern may seem paradoxical. This suggests that the Central Bank believes its priorities have shifted. According to published data, inflation fell from 34.2% in the third quarter of 2025 to 21.7% in the fourth quarter of 2025, with a projection of 11.3% in the first quarter of 2026. According to a publication by the National Institute of Statistics of Burundi, the Consumer Price Index (CPI) indicated that the price level in the fourth quarter of 2024 increased, reaching an average quarterly rise of 30%, compared to 20.1% in the fourth quarter.

For the first quarter of 2025, forecasts still indicated persistent inflationary pressures, and the observation is that this increase risks being exacerbated by regional geopolitical dynamics that could put pressure on the markets. Indeed, the BRB's determination compels it to take all necessary measures to gradually and objectively bring inflation back to around 8% in the medium term.

Thus, determining the policy rate in a country facing high inflationary pressure is a crucial process that follows a precise logic, although its practical implementation is complex and nuanced. The central bank must act like a doctor seeking to lower a high fever (inflation) without weakening the patient (the economy).

The challenges and nuances of implementation

If the central bank lowers the policy rate, peripheral banks also reduce their lending rates and mortgage rates. This means it becomes easier to obtain a loan, and mortgage rates become more attractive for buyers. However, lower policy rates can also mean lower interest payments on savings because the value of the interest payments decreases.

The central bank adjusts its monetary policy in response to economic changes, aiming to keep inflation stable while promoting growth. Generally, interest rates rise when inflation is too high and fall when inflation approaches the central bank's target.

However, implementing effective monetary policy in Burundi faces deep and interconnected structural challenges that limit the effectiveness of traditional central bank instruments. Analysis of the current situation reveals an economy grappling with severe macroeconomic imbalances, where conventional tools struggle to achieve their objectives.

Monetary policy in Burundi faces a challenge of coherence and credibility. As Leonce Ndikumana summarizes , it is illusory to try to stabilize the economy with isolated measures. He goes on to state that monetary policy, fiscal policy, and exchange rate policy must work together.

As long as fundamental imbalances persist ( weak output, chronic foreign exchange deficit, monetary financing of the deficit, and an overvalued exchange rate), the BRB's decisions, even if technically sound, will continue to have limited effects. The priority for restoring the effectiveness of monetary policy is therefore to rebuild confidence in the national currency through deep structural reforms and strict fiscal discipline, in order to escape what the IMF calls the "low growth – high inflation trap."

From perceptions to the anticipations of stakeholders

It is possible that the BRB considers that inflationary pressures have eased sufficiently. If prices rise less rapidly (for example, thanks to a better supply of local products or a lull in import prices), the central bank has more leeway to focus on growth.

However, if the rate cut is poorly received by foreign investors, it could put downward pressure on the Burundian franc, making imports (food, fuel) more expensive. The BRB will need to monitor this closely.

Furthermore, if too much money is put into circulation too quickly without a corresponding increase in production, this can create further price pressures. Commercial banks must play their part and pass on this decrease in their own interest rates for the effect to be felt.

In short, the BRB's decision to lower its key interest rate marks a strategic turning point. It signifies that the Central Bank believes the time has come to shift from a logic of price stabilization (assuming inflation is under control) to a logic of supporting growth.

For Burundian economic actors, this is an encouraging sign that should, in the long run, make financing the economy less expensive and more readily available. The effectiveness of this measure will now depend on the banks' response and the ability of entrepreneurs to seize this opportunity to invest and produce.

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