The National Bank of Rwanda (BNR) is planning to withdraw the stimulus package that was extended to banks, nearly two years since the facility was put in place to boost private sector lending.
In an exclusive interview with Business Times, Francois Kanimba, the central bank Governor said the Bank is reviewing possibilities of unwinding the stimulus package in the course of this year.
“Looking at the level of liquidity in the banking system, I do not think we still need to keep such parallel stimulus that we introduced in 2009; even when you look at how the banks are using this facility, the need has gone down drastically because they now have enough liquidity in their operations,” Kanimba said on Tuesday.
The Governor could, however, not say when the stimulus is likely to be switched off. “We still have this facility in place; probably we will phase it out in the coming (financial) year without creating credit disruption in the economy,” he added.
While liquidity conditions within the banking system have improved, the Governor observed that growth of credit to the private sector has been relatively low.
“What is not said behind these numbers is that the statistics that we have for 2010 includes two banks which were not in the statistics before, notably Zigama and the Rwanda Development Bank. This is why
the figures we are getting now are probably less than we expected,” However, he observed that the market had started responding in the last quarters of 2010.
Kanimba, further, argued that the 11 percent expansion in credit growth, which was below the 20 percent target for 2010, was ‘okay’.
“When you go far beyond you create risks for inflation. Twenty percent… all of us like it but when it is associated with other phenomenon which can create inflation such as huge public spending, it can generate inflationary pressure in the economy. Normally, I like a growth rate close to 16 per cent because, there, you are sure you can control inflation,” he observed.
Since mid 2009, BNR set up a fund to facilitate commercial banks, extend financing to businesses that deal in mortgages, lease of machinery, commercial trucks and general investments.
Under the facility, central bank is supposed to re-stock commercial banks with an equivalent of what has been disbursed while financing any of the above areas.
However, according to a recent report by the International Monetary Fund (IMF), despite three cuts in the BNR’s policy rate since November 2009 by a cumulative 300 basis points, commercial banks’ lending rates have remained persistently high, while they continue to maintain a cautious credit stance.
“Credit to the private sector has rebounded from the low levels of 2009, but the pace is much slower than envisaged in the programme for 2010,” the Fund said in its December report.