CHAPTER FIVE: CONCLUSION AND
RECOMMENDATIONS
5.1 CONCLUSION
Historically, a great deal of economic literature was
concerned with the question of what causes inflation and what effect it has,
forecasting inflation is key for a central bank to adjust its monetary policy
to control inflation. Regardless of its monetary policy framework broad money
growth target, exchange rate target, or inflation target, stabilizing inflation
is a primary objective of monetary policy.
The main goal of this work was to determine the factors
influencing inflation rate in Rwanda. To have this goal reached analytical
method was used, this method allows to systematically analyzing all information
and data collected. As far as data analysis is concerned, specific software
designed for data analysis have been used based on the times series data
collected from different government institutions.
From the findings, Money supply and Real GDP (Output) were
found to be important in determining the level of inflation. The effects of the
two variables conformed to our priori assumptions. Other alternative two
hypotheses were also rejected exchange rate and Lending rate that have not
significant effects on inflation rate in Rwanda. There was no evidence
suggesting the influences of exchange rate and lending rate on inflation, as
both t-tests are not statistical significance. This was tested based on SPSS
software attributes in accordance with the theory given in chapters 2 and 3.
These results collaborate studies on inflation in other African economies like
Chhibber and Shafik (1992: 107 - 133) obtain similar results for Ghana and
Samuel A and Ussif (2001:14) for Tanzania.
5.2 RECOMMENDATIONS
Based on the research findings, skills of the researcher and
other constraints accounted, we can conclude this study by giving the following
recommendations for further research.
The outcome of this study does not establish the superiority
of one hypothesis over the other; rather it provides a much boarder perspective
of the complexities of the inflationary process in Rwanda. It also points
towards some of drawbacks of the domestic economic policies as well as the
effects of the external factors influencing the economy which were beyond the
control of the government.
The monetarist assert that inflation everywhere is a monetary
phenomenon and can be controlled by controlling the money supply, thus to
control inflation the government will have to pursue a contractionary monetary
and fiscal policy.
The results indicated that output has a significant effect on
inflation rate in Rwanda. Hence emphasizing in substantial growth in
agriculture sector as well as other economic activities that contribute in
increase of Gross domestic product can help to moderate the rate of
inflation.
Further studies in the areas of domestic supply of agriculture
commodities, imports and exports of agricultural output were suggested in
Rwanda to determine the actual inflationary movements and pertinent policy
implications.
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