The National Bank of Rwanda (BNR) has increased the Key Repo Rate from 7 percent to 7.5 percent in a bid to contain external pressure, mitigate inflation while ensuring economic growth.The key repo rate is the fee at which the central bank lends to commercial banks. The higher the rate, the more it is likely to reduce liquidity in the banking system.“We are taking measures, give ourselves room so that if anything comes, we’ll be better prepared,” Central Bank Governor, Amb. Claver Gatete, said at a news briefing yesterday.The Governor is optimistic that the new development will contain inflation and at the same time allow more money in the economy.Rwanda’s economy is projected to grow by 7.7 percent this year, lower than last year where it grew by 8.6 percent.“There is a likelihood that we may exceed the target, but we just want to be prudent because of the external environment which is unpredictable,” said Elias Bayingana Director of Budget in the Ministry of Finance and Economic planning. Agriculture is expected to grow by 6.1 percent; industry will grow by 11 percent with, +8.6 and 13.2 percent in manufacturing and construction respectively, while the service sector is projected to grow by 8.7 percent.However, food crop for season A did not perform well at +1.3 percent compared to +5.4 percent last year and far below from an average of +10.1 percent in the last five years.The composite Index for economic activities in the first quota was at +13.4 per cent up from 9 percent in 2011.The sustained macroeconomic stability is attributed to the stimulus financing that has seen credit to private sector almost double in the first quota to Rwf 117.1 billion from Rwf 60.9 billion authorised loans in the same period last year.Credit is mainly concentrated in the sectors of commerce and hotels with Rwf 88.8 billion which is the largest share of private sector credit, followed by the mortgage industry with 47.6 billion and manufacturing with Rwf25.5 billion.From the authorised loans to private sector, agriculture got among the lowest share of Rwf 8.5 billion. The Governor explained that the sector has got heavy investment from government and other development partners thus it shouldn’t be interpreted as the least financed sector.Inflation went up in the first quota of 2012 reaching 8.18 in March from 7.81 in January this year. However, it is still the lowest in the region compared to other East African countries like Uganda, at 20.3 percent, Kenya with 13 percent and Burundi at 24 percent.Major drivers of inflation include food and non-alcoholic beverages contributing 5.5 percent, followed by housing, water, electricity gas and other fuels which constitute 1.5 percent.
