Central bank holds key lending rate at 5.5 per cent

Central Bank Governor John Rwangombwa, addresses the news conference, as Monique Nsanzabaganwa, Vice Governor, looks on in Kigali yesterday. Sam Ngendahimana.

The National Bank of Rwanda (BNR) has maintained the key repo rate at 5.5 per cent, the benchmark rate at which it lends money to commercial banks, citing a positive economic outlook.

The Governor of BNR, John Rwangombwa, said the decision to maintain the same rate was guided primarily by the expected inflation movement and its underlying factors.

“The first half of this year we saw [headline] inflation at 2.5 per cent on average and eased to 2.1 per cent in August, while core inflation was at 1.7 per cent in the last six months, it had reduced to 1.1 per cent by August,” he said.

The Rwandan Franc depreciated by 2.5 per cent against the US dollar at the end of August this year compared to 1.8 per cent and 8 per cent which was observed during the same period of 2017 and 2016, respectively.

The Bank projects stability in the currency markets while the inflation rate is expected not to exceed 5 per cent at the end of the year.

“Based on these good economic conditions and on the need to continue supporting the financing of the economy, the monetary policy committee has taken the decision to maintain the key repo rate at 5.5 per cent as it has been over the past eight months,” Rwangombwa noted.

The last time the central bank revised the repo rate was in December 2017, when the MPC reduced the rate by 5 basis points from 6 per cent to 5.5 per cent.

BNR uses repo rate to regulate the level of inflation, money supply and liquidity in the country. This rate does not only have an impact on the borrowing for banks but also the impact on the borrowing of clients from commercial banks.

When the central bank lowered the key repo rate in December last year, the hope was to encourage banks to enable businesses and industry to borrow money for different investment purposes.

However, recent statistics indicate that there has been a reduction in demand for credit. The overall loan rejection rate was estimated at 20.4 per cent in the first half of 2018.

The central bank has been reducing the key repo rate for the past few years.