The National Bank of Rwanda (BNR), yesterday, slashed the key repo rate by one percentage point to 6 percent.
The repo rate, previously at 7 percent, is the interest charged by the central bank on borrowing by commercial banks. Accordingly, the move by the central bank should lower the cost of borrowing for commercial banks and help them reduce interest rates, and increase lending to the private sector.
The Governor of BNR observed that, at the moment, commercial banks are not lending enough to the private sector, although they have expressed much interest in investing in government bonds, which is a reflection of the existence of excess liquidity in the market.
The development means that the central bank has now cut the key repo rate twice, this year, in an attempt to boost the economy, which grew at a slow pace of 6 percent last year, down from 11.2 percent in the previous year, owing to the global economic downturn. In return, the commercial banks should lower their interest rates, which, at the moment, range between 17 and 20 percent.
BNR’s repo rate cut offers the prospect for the attainment of the central bank’s projected national economic growth of between 7 and 10 percent.
But this largely depends on whether commercial banks will pass on the cuts to their customers.