Rwandan economy on sure footing as apex bank maintain key interest rate

The Rwandan Central Bank on Monday did not break tradition with most of its peers globally as it opted to maintain its key interest rate (repo rate) at 6.5 percent for the second quarter of 2016, citing a positive performance outlook for the financial sector. Most apex banks in the world have either maintained existing rate or reduced it by a quarter point due to concerns about global economic slowdown, analysts observe.

John Rwangombwa, Governor, Rwandan Central Bank, who was optimistic about the health of the country’s financial sector, described it as sound and stable. This might be one of the reasons why the governor saw no need to tweak the country’s key  monetary policy observing that “the financial soundness indicators for banks and microfinance companies show that Rwanda’s financial sector remains sound and resilient to any shocks.” He, however, assured investors that the apex bank was not being complacent. “We will nevertheless continue to monitor upcoming economic developments and take appropriate action,” he added.

Experts insist that this policy thrust would sway banks to increase lending to the private sector, which would lead to economic expansion at a time many African economies are experiencing sluggish growth due to decline in global commodity prices.

The Rwandan economy grew by 3.1 percent in 2015, and is expected to grow by 3.4 percent in 2016 which may be the reason why the apex bank has retained a rate, that is expected to induce growth.

The East African country is one of the few on the continent that has low key interest rate, proving that the Rwandan economy is maturing. Rwandan’s key interest rate of 6.5 percent is in stark contrast to its bigger neighbours like Kenya and Tanzania with higher rates of 11.50 and 12 percent respectively. Higher interests are never favourably to any country’s real sector, analysts observe.

Besides the low rates, Rwangombwa noted with delight that outstanding credit to the private sector grew by 26.7 percent year on year in December 2015 from 9.6 percent in December 2014. “Credit to the private sector grew by 23.7 percent in February 2016 compared to19.2 percent in the corresponding period of 2015. This contributed to an economic growth of 6.9 per cent,” he added.

But like most countries, Rwanda’s trade deficit widened by 12 .7 percent in the first two months of 2016 from $263.55 million to $297.02 million. The Apex bank explained that it was as a result of the increase in value of formal imports by 7.2 percent, compared to a decrease of 9.2 percent in the value of formal exports.“Consequently this exerted continued pressure on the foreign exchange market and the Rwandan franc depreciation against the US dollar reached 2.6 percent on 24 March 2016 compared to December 2015,”Rwangombwa observed.

Even so, the Rwandan economy seem to be on a sure footing, which is definitely good news to foreign investors.