Rwanda: Technical Assistance Report-Expanding the Nowcasting Toolbox at the National Bank of Rwanda

IMF Staff Country Reports, December 20, 2023

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Mission built on progress from the March 2022 mission, which focused on improving the nowcasting framework for key domestic variables and building tools for analyzing new data releases and assessing nowcasting systems.
Primary focus: further development of the nowcasting framework for inflation and gross domestic product (GDP).
Recommendation: the new consumer price index (CPI) and GDP Near-Term Forecast (NTF) tools should be used on a monthly basis as part of the forecasting process and Forecasting and Policy Analysis System work at the National Bank of Rwanda (NBR).

CPI NTF system enhancements:
- Now includes monthly forecasts of ten subgroups of the core CPI inflation.
- Includes monthly forecasts of two subgroups of food inflation.
- Enables assessment of key drivers of inflation and the nature of inflation shocks.
- Allows for ‘real time’ monitoring of monthly inflation outcomes relative to the forecast.
GDP NTF tool:
- Recommended for monthly use within the NBR forecasting workflow and FPAS, building on earlier improvements to the nowcasting framework.

Expanding the nowcasting toolbox strengthens the NBR’s capacity to monitor and interpret short-term inflation dynamics and GDP developments on a monthly frequency.
Subgroup-level CPI forecasts facilitate diagnosis of whether inflation movements are driven by core or food components and the composition of shocks.
Real-time monitoring functionality improves the timeliness of assessing forecast performance against monthly outcomes.

Integrate the CPI NTF and GDP NTF tools into the NBR’s monthly forecasting process.
Use subgroup forecasts (ten core CPI subgroups and two food subgroups) to inform policy analysis and interpretation of inflation shocks.
Employ the real-time monitoring features to track monthly inflation outcomes vis-à-vis forecasts and refine nowcasting models accordingly.