The National Bank of Rwanda (BNR) has reduced the key repo rate from 7.5 per cent to 7 per cent.

Central bank governor John Rwangombwa said the rate was reviewed downwards to encourage commercial banks to lend to the private sector.

The governor added that they ensured that there were low inflationary pressures and adequate liquidity in banks as well as stable foreign exchange before lowering the lending rate. 

"We reviewed the repo rate downwards to encourage banks to lend to the private sector and further stimulate the financing of the economy,” Rwangombwa said. 

He was speaking during the quarterly press briefing of  the bank’s monetary policy and financial stability committees at the central bank on Tuesday. 

A repo (repossession) rate is the discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the country’s monetary system. To temporarily expand the money supply, the central bank decreases repo rates so that banks can swap their holdings of government securities for cash. 

To contract the money supply it increases the repo rates. 

According to the central bank’s monetary policy committee, outstanding credit increased by 4 per cent over the past five months compared to 16.2 per cent recorded in the same period in 2012. Rwangombwa said new authorised loans were Rwf176.1b over the past five months compared to Rwf214.4b over the same period in 2012. 

The bank attributed the slowdown in the banks’ lending to a stance aimed at enhancing risks management following huge credit disbursements last year. Rwangombwa also assured that the financial sector was strong, stable and resilient to adverse changes, saying all the banks were adequately capitalised, with an overall capital adequacy ratio of 24.6 per cent (as at the end of March). 

He said this was above the regulatory minimum requirement of 15 per cent and adequate liquidity of 46.4 per cent in May against the 20 per cent benchmark.

He attributed the good performance of banks to the strong regulatory framework and continuous off-site and on-site inspections by the central bank.

Economic growth this year is expected at 7.5 per cent from 8 per cent in 2012, driven by the agricultural sector which is expected to grow by 6.7 per cent, the services sector that will expand by 7 per cent and industry (9.1 per cent).