The National Bank of Rwanda has revised the key repo rate from 5.5 per cent to 5 per cent in a move designed to boost lending to the private sector.

The key repo rate is the maximum rate at which commercial banks invest their money at the central bank.

The development was announced by the Central Bank Governor, John Rwangombwa, yesterday, shortly after the Monetary Policy and Financial Stability Committee meetings.

The governor said that given that inflation had remained low in the first quarter of 2019, at around 1 per cent, and growing demand for credit from the private sector, the committee had to lower the repo rate and maintain an accommodative monetary stance.

The rate was last revised in December 2017 from 6 per cent, to encourage local financial institutions to reduce the rates at which they lend to public.

Lowering the rate creates a scenario whereby banks make more returns by investing with the private sector as opposed to when they invest with the central bank.

Statistics from the central bank indicate that in the first quarter of the year, there was growth in credit to the private sector and newly authorised loans at 16.2 per cent and 24.9 per cent respectively.

Rwangombwa said that the trend is expected to be sustained throughout the year.

The New Times has established that the sectors with the largest demand for loans in the first quarter were manufacturing and personal loans, through micro-digital lending operations.

The amount of money that was lent to mortgages, restaurants and hotels consequently shrunk.

Valence Kimenyi, the Director of Financial Stability and Monitoring at the central bank, said that increased lending to the manufacturing sector was a positive development as it is in-line with the country’s objectives.

As a consequence of increased lending, banks’ profits in the first quarter of the year grew to Rwf16.1 billion compared to Rwf9.2 billion in the same period last year. Assets in the local financial sector further grew to Rwf4.8 trillion.

Quality of loans was also found to have improved as non-performing loans remained stable at 6.8 per cent as of March this year.

At a time when local banks are on the verge of mobilising capital to meet the required minimum capital requirement, which was revised from Rwf5 billion to Rwf20 billion, the governor said that the capital adequacy ratio stood at 25.5 per cent compared to the prudential minimum of 15 per cent.

Capital adequacy ratio (CAR) is an international standard that measures lenders’ risk of insolvency from excessive losses and is used to ensure that banks can absorb a reasonable amount of loss as a safeguard to depositors and economic stability.

Rwanda currently has 16 commercial banks.

On the downside, the Franc is expected to depreciate against the Dollar due to high import bill but the governor said that there were adequate exchange reserves to provide buffer.

Trade deficit grew by 7.5 per cent in the first quarter of 2019 largely due to the import of capital and intermediary goods largely meant for the construction and other sectors. Export revenues were found to be taking hit as a result of international market prices.

However, total net flow is expected to increase by about 16.9 per cent in 2019 driven by tourism, remittances and Foreign Direct Investments.

The Rwandan economy is projected to grow by 7.8 per cent in 2019, according to the latest projections by the International Monetary Fund (IMF).

The economy is projected to remain strong in 2019, at 7.8 per cent, driven by investment flow, continued diversification of exports, and continued resilience of the agriculture sector.

The projected growth will, among other things, rely on the continued investment inflows, foreign and local.

editor@newtimesrwanda.com