Rwanda’s bank deposits increased by only 6.4 percent, against 35 percent in 2007
FINA Bank has increased interest rates by 2 percent to 18 percent per annum. The new base rates take effect on 1 April.
According to Kenneth Agaba, the bank’s Head of Business Banking, the increment will only affect borrowers whose interest rate is changeable under the credit facility offered by the banking institution. This means all borrowers whose interest rates are not fixed will increase this year.
“The interest rise is in light of the current prevailing circumstances that have resulted into a decline in liquidity on the local money market,” Agaba told Business Times on Tuesday at the bank’s headquarters in Kigali.
He added, “The key driver for the raise is the increased cost of doing business, essentially related to raising deposits among others. It is only fair that our rates should also reflect the changes in market conditions.”
He however added that the bank would only reduce the interest rate if the prevailing situation reversed, though he could not indicate a specific period within which this would happen.
“When the market conditions are conducive, the bank will consider reducing the interest rates,” Agaba said.
He further expressed optimism that the interest rates would eventually come down as the Central Bank has put measures to address the situation.
In a bid to manage liquidity and control inflation, the National Bank of Rwanda reviewed its policy rates in January by increasing it from 8 per cent to 9 per cent.
To provide the banking system with more liquidity to finance the economy, the central bank has reduced the reserve requirement ratio from 8 per cent to 5 per cent. It also reduced the width of the inter-bank corridor from 3 per cent to 2 per cent.
According to the NBR‘s monetary policy statement for 2009, liquidity in the banking system has been diminishing since last year.
This is attributed to significant improvement in the absorption capacity of the economy reflected by the rapid increase in credit to private sector from 22.4 per cent in 2007 to 31.6 percent in 2008.
The policy statement released recently by the Governor of the central bank, François Kanimba said that, the demand for currency increased by 28 percent in 2008 against 9 percent in 2007.
Bank deposits increased by only 6.4 percent, against 35 percent in 2007.
In addition the increase in government capital expenditure also led to an increase in foreign exchange component of public spending.