The central bank is trying to contain mounting pressure on bank deposits as individuals and institutions withdraw money to invest in Treasury Bills--a trend that can undermine lending to the private sector.
If not swiftly dealt with, there is a risk of a rise in lending rates because banks may be forced to borrow expensively from abroad in order to finance their operations at home.
The fear is that money is leaving the banking sector, the main financier of private sector operations as institutional depositors such as pension funds, insurance firms and individuals start getting interested in investing in Treasury Bills.
Previously only commercial banks were involved in the business of treasury bills--which basically means lending to government--but the lucrative nature of the business is now attracting institutions and individuals as well, the governor of National Bank of Rwanda (BNR), Claver Gatete has said.
There is almost no risk in lending to government through purchase of treasury bills and bonds and that is the reason commercial banks, and of late all, individuals and institutional investors scramble for government debt.
This however can leave the private sector, the engine of economic growth, without credit or pay more for the loans because of the perceived higher risk in lending to private companies as compared to lending government.
"We are ready with our tools to ensure that interest rates don't go up," said the Gatete. He spoke during the presentation of the Monetary Policy and Financial Stability Statement in Kigali on Friday last week.
While he could not reveal what "tools" are at his disposal to deal with this situation, financial experts say lowering interest rates on TBs is the main option available the chief regulator of the finance sector so as to make the business less lucrative and dissuade some individual and institutional investors from participating.
The banks, Gatete said, have not signaled intentions to hike interest rates on loans despite the pressure. Lending rates have remained stable at an average of 17% per annum--boosting private sector borrowing by 27.8% to Frw 747.3 billion as of December 2012 from 556.9 billion end of December 2011.
This was perhaps made possible by a surge in bank deposits to Frw 844 billion as of 30th December 2012 from Frw732.6 billion that the banks had during the same month of the previous year.
Not only did the banking sector register growth in loans and deposits, assets also expanded by 15.1% to 1,247.6 billion in December 2012 from Frw 1,084.2 billion of the previous year. This means that local banks have adequate capacity not only to meet the borrowing needs of their clients but also alleviate risks.
"The macro-prudential assessment and stress testing results indicate that the banking sector remains well capitalized and liquid with sufficient capital to mitigate risks," BNR stated in its February 2013 Monetary Policy and Financial Stability Statement. The industry capitalization level now stands at 23.9%, quit comfortably ahead of the regulatory minimum capital requirement of 15%.
Even as the global economic environment remains largely full of uncertainties brought about by the European sovereign debt crisis and unresolved issues surrounding the US fiscal policy, Gatete said the Rwanda economy remains resilient and on course to sustained growth.
Real GDP grew at 7.5%, 9.9% but slowed down to 7.3% during the first, second and third quarters of 2012 on account of increase in import of capital and intermediary goods by 28.1% and 24.1% in volume and value respectively.
Importation of capital and intermediary goods spurred economic activity in the construction and services industry--the main drivers of economic growth during the year.
This year, the economy is expected to grow by about 7.5%, the highest in the east African region and above the sub-Saharan average of about 5.8%. Agriculture, whose contribution to real GDP growth was last year marginal due to bad weather conditions, is expected to rebound this year.
According to BNR, developing countries are likely to experience lower economic growth rates during the year due to weak demand for exports from traditional markets in Europe.
In Rwanda case, the effect of sluggish demand in the international market is already being felt in the coffee sector, the country's main and traditional export. For example, although the country exported over 17,000 tons of coffee last year compared with 15,000 tons of 2011, proceeds reduced by about 18.5% to $60.9 million. The price of coffee fell from $4.8 in 2011 to $3.6 per kg in 2012 due to massive supply from the leading producer, Brazil.
"We therefore need to reconsider and look at non-traditional exports and see how to boost them," Gatete said.