Interbank market is taking shape, central bank chief economist

Dr Thomas Kigabo, said that interbank market is rapidly growing contrary to the past five years. Michel Nkurunziza.

National Bank of Rwanda’s Chief Economist Dr Thomas Kigabo, has said that interbank market is rapidly growing currently compared to the past five years.

He was speaking to university students and researchers during a brainstorming session organised by Economic Policy Research Network Rwanda in collaboration with National Bank of Rwanda (BNR) at University of Rwanda/School of Business and Economics.

Interbank market is an exclusive financial market where banks borrow short-term funds from other banks with liquidity.

Banks use the interbank market to manage exchange rate and interest rate risk as they borrow and lend among themselves without referring to Central Bank.

The system helps banks to be able to give loans to the private sector seeking loans.

“In the last five years, interbank market was too idle and this was a challenge affecting the way that banks take decisions to provide loans. There could pass two or four months without any transactions in terms of interbank. But today at least 20 banks are involved in inter-bank transactions every day at least in the whole week,” said the Chief Economist.

He said that money market that is fast growing helps banks to support private sector.

“Today money provided by banks every month is 25 times of the money that used to be provided every year before 1990. This means economy is growing well as private sector grows as well,” he said.

There are 11 commercial banks operational in Rwanda.

According to the recent Central Bank statistics, in 2013, the interbank market recorded Rwf146 billion through only 97 transactions. Last year, the interbank market rose to Rwf677 billion with about 337 transactions.

In the first quarter of 2019, money market interest rates remained stable, in line with the Central Bank Rate (CBR).

Following CBR trend, market rates continue to decrease.

In May this year the quarterly Monetary Policy Committee reduced the Central Bank Rate (CBR) by 50 basis points from 5.5 cent to 5.0 per cent.

“Money market among commercial banks plays a big role in creating money. If a bank has a shortage of money, it has two ways to get money. Either buy money from the one with excess in liquidity or buy from central bank. As BNR we daily monitor that the Central Bank Rate is currently 5 per cent,” he said.

Outstanding credit to private sector and new authorized loans increased at a higher place, growing at 16.2 per cent and 24.9 per cent in first quarter of 2019, respectively from 7.3 per cent and 7.4 per cent recorded in first quarter of 2018.

“As central Bank we have planned to work with universities and researchers in economic sector to build their capacity in terms of carrying out research since the national economy is growing even in sophisticated way because of the involvement of IT and different innovations,”

“Researchers and academics must go in line with such development so that it helps those who set up policies and help Rwandans to understand economy and opportunities they have in terms of saving and other things to do to develop their businesses,” he said.

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