The National Bank of Rwanda (BNR) has maintained its key repo rate at 6.5 per cent to encourage more lending to the private sector, while at the same time keeping inflation under control.
BNR Governor John Rwangombwa, yesterday, said the central bank opted not to change the rate at which it lends to commercial banks because it proved to be an effective policy as it allowed more credit flow to businesses while maintaining inflation low.
BNR cut its key lending rate from 7.5 per cent in 2013 to 7 per cent in the first half of last year, and later to the current 6.5 per cent. As a result, new loans to the private sector increased by 38.2 per cent in 2014, compared to a 5.3 per cent decline registered in 2013.
Speaking during the BNR’s quarterly financial stability and monetary policy media briefing in Kigali, Rwangombwa said credit to the private sector increased by 19.6 per cent last year, from 15.6 per cent in 2013.
At the same time, headline inflation remained low in January and February this year, at 1.4 and 0.7 per cent, respectively, partly due to falling international commodity prices and bumper agricultural harvests in the first quarter of the year.
However, there has not been any significant reduction in interest rates commercial banks charge borrowers, with rates fluctuating from an average of 17.5 per cent in June last year to 16.7 per cent in November, last year, and then upwards to 17.49 per cent.
Rwangombwa said most banks hadn’t been able to lower the interest rates because of the expensive client deposits they had collected prior to BNR lowering the key repo rate.
“There is always a time lag between when the central bank announces the new policy rate and when the market adjusts to it,” said Maurice Toroitich, the managing director of KCB Rwanda.
Toroitich said banks take deposits from customers at certain rates for a certain period, say a year, meaning that they can only adjust interest rates downwards after the period has lapsed.
Rwangombwa noted that some banks’ deposit rates had stabilised and was optimistic they would start lowering their interest rates.
Bank deposit rates have decreased since last year, from a market average of 8.9 per cent in January, last year, to 8.5 per cent last month, while the interbank rate has also decreased from 5.6 to 4.1 per cent over the same period, showing that lenders were willing to finance activities facilitating economic growth.
After a slowdown of 4.7 per cent in 2013, the economy recovered in 2014, growing by 7 per cent in real terms.
Rwangombwa projected the economy to continue expanding this year as BNR has planned to continue easing its monetary policy to support financing of the economy by the banking sector.
In the first two months of the year, total turnover in industry and services sectors recorded a 12.6 per cent year-on-year increase. This is higher than the 10.9 per cent recorded in the same period last year. The turnovers stood at Rwf505.4 billion at the end of last month, from Rwf448.9 billion at the end of February, last year.
Because Rwanda is an import-based economy, trade deficit widened by 7.5 per cent last year.
However, during the first two months of this year, it reduced by 12.9 per cent, according to BNR, as a result of decline in formal imports by 9 per cent in value and a moderate increase in formal exports’ value by 6 per cent.
Last month, formal exports covered 24.5 per cent of formal imports compared to 21.1 per cent in the same period last year.
Rwangombwa said the decline in international oil prices enabled fuel importers and oil consumers in the country to spend less on the commodity than they did in the past, allowing them to save or do other investments in the country.