7 July 2012

Rwanda: BNR Maintains 7.5 Percent Lending Rate

The Central bank, on Friday, announced it will maintain its key repo rate at 7.5 percent, citing easing of inflationary pressures in the region and signs of global economic stabilisation.

Key repo rate is the rate at which National bank lends to commercial banks, it's used to control inflation by reducing the rate it allows more liquidity whereas by increasing the rate, its one way of mopping up the liquidity.

"We are seeing developments that are helping the economies grow in the Euro zone, and this is helpful because it will increase demand for everything we send to those markets," Amb Claver Gatete, Governor of the Central Bank, said during a press briefing.

According to IMF projections as of April 2012, the world economy is expected to grow by 3.5 percent in 2012 driven by America, whose economy is expected to grow by 2.1 percent while the EU is set to decline by 0.3 percent.

By keeping the lending rate unchanged, BNR expects commercial banks to continue increasing credit to the private sector.

In the last five months of 2012, credit to private sector increased by 15.5 percent with new authorized loans recording 39 percent.

"The Rwandan economy is continuing to show strong growth, while inflationary pressures are currently high, but expected to ease as the regional inflation pressures stabilises and local economic activities strengthen" he said. By end of last month, annual headline inflation increased to 8.32 percent from 6.95 percent in April. The economy is projected to grow by 7.7 percent in 2012

To attain the growth, agriculture is expected to grow by 6.4 per cent, Industry 11.3, Services at 8.3 per cent.

"We have been following what is going on globally, regionally, with interest, and feel very much relieved," Gatete said.

It is said that the progressive easing of regional inflation will have a significant impact on domestic inflation as most of it is imported. However, the Rwandan Franc depreciated by 1.4 percent against the dollar, a move that is attributed to higher demand of imports.

"The repo rate needs to be maintained because the economy is stable and currency had a small shock but it's easing and the policy measure is yielding results," Gatete said.

According to IMF projections for EAC growth, Burundi will have the lowest growth at 3.9 pe cent, Kenya 4.1 Tanzania at 6.5 and Uganda 5.8 percent.

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