The Effect of Interest-Rate Changes on Household Saving and Consumption in Rwanda

The effects of interest rate changes on consumption and saving are central concerns in macroeconomics and the economy at large. Rwanda generally has a good track record in recent years of maintaining a stable macroeconomic environment. However, recent developments in international financial and commodity markets have increased the risks to the macroeconomic stability, particularly to savings and investments. Due to increased inflation, interest rates have also gone up in order to pursue tightened monetary policies. However, there is a need to create an environment with moderate inflation accompanied with positive interest regimes to help mobilization of savings. This study aims at analyzing effects of interest rate changes on household consumption and saving in Rwanda. Using both primary data and secondary data, exploratory, descriptive and inferential analyses were conducted. The research targeted population of Rwanda and 400 individuals were sampled. Multistage sampling, convenience and judgement sampling techniques were used. Both univariate and multiple regression analyses were conducted to check household behavior and establish relationship between interest rate, consumption and saving. This study therefore results end up by revealing that there is a positive relationship between interest rate, household consumption and saving in Rwanda. Researcher recommends that government should put strong control on monetary policies to ensure interest rate remain in band whereby encouraging household to save and yet consume appropriately for better welfare.