East African Business Week

KIGALI, RWANDA -  The National Bank of Rwanda (NBR) has maintained its benchmark lending rate at 6% throughout the next three months in a wake-up call to the  commercial banks to continue injecting money into the economy.
The Key Repo Rate (KRR), a benchmark rate at which the Central Bank
lends to the commercial banks has remained unchanged since Novemberlast year, giving an indication that Rwanda's monetary stance ishealthy.
While announcing the decision at the Bank's headquarter in Kigalirecently, Governor Claver Gatete noted that the rate was 'consistent
with the Bank's objective of ensuring price stability while stimulating lending to the economy and maintaining interest rates positive in real terms'. Mr. Gatete said that the bank was cautious on adjusting the KRR because it would either fuel inflation or contract the credit market.
By raising it, banks would find it harder to borrow thus imposing stricter lending conditions on borrowers.
Reducing the rate would also increase money in the market, something that the Bank fears would fuel inflation, which stood at 4.5% in May and is expected not to exceed 5% in June.
The Bank's decision means that the interbank market will continue to
operate under soft conditions, allowing banks to transact among themselves cheaply to avoid raising commercial funds on higher rates, which could increase the lending rates.This could result into more lending to the businesses on softer but profitable terms to both lenders and borrowers.
However, maintaining the KRR does not mean that lenders will rush to
lower the lending rates.
Rwanda as well as elsewhere in the world does not control the interest
rates, they are open for negotiation between the lender and the borrower.
In the Rwandan case, Banks continue to claim high risks associated
with the borrowers and this is why interest rates remain reasonably high between 19 and 20%. This makes it harder for 'small borrowers' especially Micro, Small and Medium Enterprises (MSME) who often lack collateral to access credit.
Meanwhile, the Central Bank said that credit to the private sector continues to grow since early this year.
Mr. Gatete noted that whereas this year's credit growth is expected toreach 19.2%, at least half of it has already been achieved in the five months of this year.
Increased lending means that Rwanda's economic growth projection of 7% end of the year will be achieved or not. This means that all sectors-agriculture and non-agriculture must perform better to meet the growth targets.
However, Mr. Gatete noted that the agriculture sector slowed during
the past two quarters owing to delayed rains.
"In agriculture, in season A, it shows a moderate increase of 5.4% compared to 11.5% in the year 2010 and one of the reasons for that is the rains which came a bit late and had an impact," Mr. Gatete said.
He further said that in non-agriculture sector, which represents industry and service sectors, 'the story was rosy' as the sector grew by 10.2% in May 2011 compared to 8% in the same month last year.