The new ‘key repo’ rate by the National Bank of Rwanda (NBR) towards local commercial banks has been welcomed by the Kenya Commercial Bank (KCB).
The ‘key repo rate’ is a rate at which the Central Bank lends to commercial banks. The higher the rate the more it is likely to reduce the liquidity in the banking system.
Last week, NBR speared headed by its monetary policy committee revised the repo rate downwards from 9 percent to 7.5 percent for all commercial banks.
“The decision by the central bank is very important as it will go a long way in improving the liquidity in banks,” said Samuel Luto the head of finance department at KCB.
With the national bank reducing the rate, commercial banks expect to see a reduction in the cost of funds hence the lending rate to their clients will also reduce.
KCB’s current interest rate to its clients is 16 percent. With the new development by the national bank, officials said that it is now expected to go down.
The monetary policy committee revises the ‘repo rate’ on a quarterly basis. This has been the second time this year. It was increased in February from 5 percent to 9 percent.
Francois Kanimba the Central Bank Governor said that the new rate, which will be effected at the beginning of 2010, aims at maintaining price stability and stimulating the domestic savings by keeping positive interest rates in real terms as well as encouraging private sector investments for a higher economic growth.
The ‘repo rate’ can either go up or down depending on the current macro-economic situation and the reduction this quarter was due to a stable and low inflation that is at 6 percent this month on an annual basis.
Kanimba also said that the increasing liquidity in the banking system, the reduction aims at improving the credit conditions to the economy.