Central Bank revises key repo rate to encourage lending

The Central Bank has revised downwards its Key Repo rate from 5 per cent to 4.5 per cent with an aim to spur lending to the private sector to support economic recovery amid the Novel Coronavirus pandemic.

This followed the quarterly Monetary Policy Committee (MPC) meeting, held on Wednesday, April 29 to review recent economic developments globally and nationally as well as potential interventions.

The key repo rate is the maximum rate at which commercial banks invest their money at the central bank.

The regulator noted that the pandemic which had negative implications on the global economy causing economic disruptions was also weighing on Rwanda’s economy. 

Leading indicators suggest that the Rwandan economy performed well in the first two months of 2020 with the composite index for economic activities growing by 5.1 per cent in the first quarter.

The Central Bank noted that there had been a slowdown  resulting from the pandemic especially in the service and industry sectors.

With the slowdown and decline in economic activities, there had been a significant drop in new authorized loans by 10.6 per cent in the first quarter of 2020. However, the outstanding credit to the private sector increased by 4.3 per cent in 2020Q1.

The regulator is however optimistic that the policy measures being taken by the government aiming at supporting the recovery of the economy after COVID 19 will serve to increase the demand for credit by the private sector as well as a reduction in the trade deficit.

In the first quarter, the trade deficit deteriorated by 18.8 per cent owing to higher imports compared to exports.

Inflation in the first quarter stood at 8.2 per cent driven by food and energy inflation and is expected to decelerate to an average of 6 per cent for the year.