The National Bank of Rwanda (BNR) will maintain the 6 percent key lending rate that was set in November last year to further stimulate lending to the economy and support economic growth, estimated at 7 percent this year.
“Keeping the policy rate at low levels is expected to enable banks to look for investment opportunities. I strongly believe the 22.4 percent target of credit growth is achievable because the economic conditions are favourable,” Francois Kanimba, the BNR Governor, said yesterday during the launch of the Bank’s Monetary Policy and Financial Stability Statement.
Kanimba underscored that as long as inflationary pressures are under control, the BNR policy rate will be maintained at low levels to reduce incentives for banks to invest in money market instruments.
He particularly emphasised the need for banks to increase lending to Small and Medium Enterprises (SMEs), which continue to experience limited access to funding.
“Corporates (big companies) do not have problems accessing loans; it is with the SMEs where we still have a big problem,” the Governor observed.
However, with the licensing of new Micro Finance Institutions (MFIs) and the Umurenge Sacco programme in advanced stages, Kanimba said this would enhance access to finance for SMEs in 2011.
He added that the market had started responding towards the end of last year as liquidity within the banking system remains at comfortable levels.
In 2010, credit to the private sector expanded by only 12.7 percent, way below the target of 20 percent for the whole year, mainly due to strongly enhanced risk management practices and loan recovery processes by banks.
While the country continued to experience significantly low inflation in 2010 with annual headline inflation slightly rising by 0.23 percent in December from 5.7 percent the previous year, it is projected to rise sharply to 6 percent maximum in 2011.
“We will keep monitoring imported inflation, which has been increasing moderately since 2010 and this might continue in 2011,” the Governor said.
Last year, Rwanda’s economy benefited from a revival in economic activity particularly within the service and construction sectors, in addition to agriculture production, pushing growth to 7.4 percent from 6.1 percent in 2009.
The country also significantly benefited from improved terms of trade following worldwide declining import prices and higher export commodity prices last year.
Traditional exports of coffee, tea and minerals remained dominant representing 60.2 percent of the total earnings in 2010.