The Government of Rwanda, through the central bank, will continue to borrow money from the public by issuing Treasury bonds to fund long-term infrastructure projects and boost the nascent stock exchange, only if the move does not limit private sector borrowing, it has emerged.

The central bank Governor, François Kanimba, said yesterday that the current market conditions, which are characterised by low inflation levels and favourable liquidity conditions in the banking system are suitable to issuance of more financial instruments.

He was presiding over a function to list government’s Rwf2.5b Treasury bond on the Rwanda Stock Exchange (RSE). The 8th Treasury bond to be listed on the RSE pays an interest rate of 10.5 percent per annum with a maturity period of 3 year.

"This is part of the issuance programme that we have undertaken to implement during the year 2011,” the Governor said.

Government debt in form of treasury bonds amounts to Rwf12.5b and close to Rwf60b in short-term treasury bills, the Governor said.

With the bond oversubscribed by over 328 percent on the primary market, the highest subscription rate since the launch of capital markets in 2008, Kanimba said, reflects that local investors are aware of risk-free undertakings.

"There’s room to borrow more money if banks are willing to lend,” Kanimba said, allaying fears that continued government borrowing from the public could increase interest rates and possibly lead to drops in private sector lending.

The central bank is also keen to continue issuing bonds in order to develop a yield curve, a benchmark for pricing other debts like mortgage rates, corporate bonds or bank lending rates.

To develop a stable yield curve, he said, the central bank needs a "critical mass” of government bonds with diversified maturities.

"The reasonable point of start is Rwf30 billion worth of bonds with different maturities,” he said.

The chairman of RSE, Dr. James Ndahiro, said government has undertaken an important role to deepen the capital market.

"It is one of the important infrastructures to raise, not only long-term capital to invest in productive areas, but also help our corporate companies to diversify,” he said.

The Rwanda stock exchange boosts of one local equity listings from Bralirwa as well as two cross listings by Kenya Commercial Banks (KCB) and Nation Media Group (NMG). It also lists five treasury bonds and one corporate bond of Rwanda Commercial Bank (BCR).

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