The National Bank of Rwanda (NBR) announced Friday that it has slashed its key repo rate from 9 percent to 7.5 percent to lower the cost of funding by commercial banks.

François Kanimba, Governor of the NBR said that the decision by the bank’s Monetary Policy Committee was induced by the current macro-economic environment, characterised by a stable and low inflation that is estimated at 6 percent this month on an annual basis.

"With the increasing liquidity in the banking system, the reduction aims at improving the credit conditions to the economy,” explained Kanimba.

Kanimba said that the new rate, which will be effected at the beginning of 2010, aims at maintaining price stability and stimulating the domestic savings by keeping positive interest rates in real terms as well as encouraging private sector investments for a higher economic growth.

This is the second time the Central Bank revising it rate this year. In February the key repo rate was revised to 9 percent from 5 percent.

The Central Bank expects to achieve a reduction in the cost of funds by the commercial banks and increase the liquidity into the economy assuming that the reduction in cost of funds will be transmitted in credit markets by lowering banks’ lending rates.

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