The central bank has maintained its key repo, the rate at which it lends to commercial banks, at 6.5 per cent for this quarter of the year.

The repo rate has been constant since June when it was slashed from 7 per cent to encourage lending to the private sector and stimulate economic growth that had contracted from late 2012 due to suspension of donor support, before easing it to 7 per cent and then 6.5 per cent in June.

National Bank of Rwanda (BNR) governor John Rwagombwa said the bank maintained the rate at 6.5 per cent because "the global economy is recovering and there is subdued inflation.”

"There is also encouraging economic performance supported by the improvement in economic financing coupled with the current accommodative monetary policy,” he said.

Rwagombwa was presenting the quarterly monetary policy and financial stability statement at BNR headquarters in Kigali yesterday.

"We are already getting the desired results, especially as far as lending to the private sector to support investment is concerned,” Rwangombwa said.

The reduction in key lending rate created favourable liquidity conditions, leading to easing of money market interest rates. However, lending and deposit rates have remained stable.

The Treasury bills rate declined to 5.2 per cent in August from 5.6 per cent in June. Lending and deposit rates were at between 17.2 per cent and 17.5 per cent and 8.4 per cent and 8.8 per cent, respectively, in August.

Borrowing not affected

This, however, had little effect on borrowing as new authorised loans inched up to Rwf420 billion in the first eight months of the year from Rwf289 billion recorded in the same period last year, according to Rwangombwa.

He said the central bank could not revise the repo rate downwards because of global economic uncertainties, especially those triggered by fluctuation of fuel prices.

"We expect that to push inflation from almost one per cent to 3.2 per cent; that is why we decided to maintain the key repo rate at 6.5 per cent,” he explained.

After a slowdown in real Gross Domestic Product growth last year, the economy grew by 7.4 per cent during the first quarter of the year and is expected to close the year at 6 per cent.

The agriculture sector is yet to bounce back, having grown by 5 per cent during the first quarter compared to 6 per cent during the same period last year. The industrial sector also contracted, down to 9 per cent from 13 per cent last year.

The services sector performance, however, doubled from 4 per cent in the first quarter of 2013 to 8 per cent this year. Banks and insurance companies contributed 14.2 per cent to the sector’s total turnovers over the period.

However, traders maintain the lending rates are still high. The say the prohibitive rates are inhibiting business growth.

Investors urged BNR to use other instruments so commercial banks can lower their interest rates, some of which go up to 19 per cent for personal loans.

Rwangombwa, however, said BNR has no powers to reduce interest rates charged by commercial banks.

Rachid Muremangingo, the Cogebanque chief finance officer, said there is need for a study on the interest rates offered by the different players.

"The study can then recommend the range of interest rates so that banks can make informed decisions. Otherwise, commercial banks will continue charging interest rates according to their expenses and the level of risk,” he said.