In a bid to further promote access to finance, the central bank has reduced its lending rate to commercial banks from 7% to 6.5% to encourage banks to lend more to the private sector and spur socioeconomic growth.
This was announced by BNR governor John Rwangombwa during a press conference on the quarterly monitory policy and financial stability committees meeting.
The reduction in the repo rate comes shortly after new figures released by the
Rwangombwa said that this permitted to ease the monetary policy position in order to allow more money into the private sector and sustain economic recovery.
According to the governor, the decision to reduce the lending rate to commercial banks was reached upon during the ordinary meeting of the
"In view of these key developments, economic outlook and financial fundamentals both at national and international level, the MPC highlighted the need to further ease the monetary policy position so as to continue sustaining economic recovery," Rwangombwa said.
Yet he added that the central bank would continue to closely monitor efficiency in the financial sector through strengthening its supervisory function and implementing necessary reforms in pension, insurance, banking and microfinance institutions aimed at building a further dynamic financial market that can support private sector growth.
Growth in lending:
Statistics at BNR indicate growth in lending to the private sector with new loans up by 46% during the first five months of the year compared to a 13.7% contraction during the same period last year.
Banks signed up new loans worth Frw 270 billion. Overall, outstanding credit to the private sector increased by 8% between
BNR said that there are already signs of falling lending rates with treasury bills rate down to 5.92% as of
The lending rate for most commercial banks declined from 17.65% in June last year, to 17.23% in May. This means that more credit is going to the private sector to support investment, BNR chief economist Thomas Kigabo said.
Credit to the private sector is projected to continue increasing this financial year.
Banking sector welcomes decision:
The chairman of the
"The overall picture is positive and could be made more impressive if the reversed rate is also reflected on deposit rates and non-performing loans," Annand said.
The head of the Treasury Unit at
"Low interest rates could mean that commercial banks will prefer to lend more credit to the private sector instead of investing in government treasury bonds. This will translate into increased private investments and drive the country's economic growth," Rwiranga said.
The economy continues to recover from the 2013 slowdown with good performance by the industrial sector that expanded at 9%, the service sector at 8% and agriculture at 5% during the first quarter of 2013.
Economists at BNR are projecting a more resounding economic recovery during the second quarter, owing to stable economic conditions at home and globally underpinned by low inflation, stable commodity prices and the general rebound in the global economy.
Gerard Sina Nyirangara, the owner of food and drinks company Nyirangarama, also welcomed that the initiative saying that it will enable more people in the private sector to get access to credit and ultimately boost economic growth.
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