Commercial banks have been urged to lend more to the private sector in order to shore up the country’s growth.John Rwangombwa, the central bank governor, said the main purpose of reducing the key lending rate to seven per cent in June, down from 7.5 per cent inMay was to encourage banks to lend to private sector.Rwangombwa was presenting the National Bank of Rwanda’s  quarterly monetary policy and financial stability statement in Kigali yesterday.He said the outstanding credit to the private sector between June 2012 and June this year increased by 18.3 per cent, compared to 35.6 per cent recorded between June 2011 and June last year.He attributed the moderate increase to a decline in net credit to government of negative 43.3 per cent following an accumulation of government deposits boosted by this year’s Eurobond proceeds and increased budget support inflows."When you look at the trend of government spending, it automatically has an impact on the private sector. The less government spends, the less money flow into the private sector,” he explained.The governor noted that there was improved economic activity in the second quarter of the year because banks extended more loans to the private sector. A total of Rwf122.9b was disbursed compared to Rwf97.6b in the first quarter, exceeding authorised loans during second quarter of 2012.Commerce and hotel (48.8 per cent), mortgage industry (19.8 per cent) and manufacturing industries (6.7 per cent) remained the most financed activities, as was in the previous periods.Boost lendingSanjeev Anand, the chairperson of the Rwanda Bankers Association, noted that it was important to also look at the quality of loans disbursed besides reductions or increases in the bank rate when examining banks’ loan book growth. He said some people always fear to acquire loans, arguing that the interest rates are high.Anand also defended commercial banks, saying those that do not apply for credit or lack the requirements are the ones who complain that banks don’t lend yet "it is our main business”."Usually, when the banking sector goes down, the economy follows. We have seen a positive trend in terms of loans given out to women, the youth and other groups. These are phenomenal increases,” Anand, who is also the Commercial Bank of Rwanda managing director, said.He added that the central bank had eased the monetary policy by reducing the repo rate by 0.5 per cent, noting that the move had encouraged banks to boost lending to businesses, particularly in the past two months.This year’s first quarter economic growth of 5.9 per cent was mainly driven by good performance in the industry sector of 14.3 per cent and agriculture sector of 5.5 per cent, while the services sector recorded a slowdown in growth of four per cent.Exports value amounted to $289.92m in the first half of this year, indicating a 46.3 per cent growth compared to the same period last year. Volumes increased by 27.1 per cent.Total imports were valued at $1,135.3m from $1,046.8m in the same period of 2012, resulting in a slightly improved trade deficit of $845.4m from $848.3m recorded in the same period of last year.The central bank also noted the inflation rate had been maintained at low levels since 2012 in spite of the unstable global economic environment and dry weather conditions that led to domestic food prices shooting up."The dry season came at an unexpected time this year, leading to increases in foodstuff prices. But we expect them to stabilise once the rains  start,” said Rwangombwa.Pichette Sayinzoga, the Ministry of Finance permanent secretary, said the fiscal stance taken by the central bank was a rather conservative one in terms of domestic borrowing."We are going to work together as government to ensure the fiscal policy is tight and stable to continue to stimulate growth,” she said.Click here to see related story