The National Bank of Rwanda has, today, announced that the Key Repo Rate (KRR) has been maintained at 7 per following an ordinary meeting between the Bank’s Monetary Policy Committee (MPC) and the Financial Stability Committee (FSC).
The meeting aimed at assessing the monetary policy implementation for the first quarter 2014 and to review the financial sector performance to decide the way forward on the policy orientation.
The key repo rate also known as repurchase agreement or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date.
According to MPC, the year 2013 saw the Rwandan economy evolve in a challenging environment marked by, among other things, a lagged impact of the mid-2012 cuts in donor support, which were reflected in reduced government expenditure in 2013.
However, the committee says that contrary to previous years, the annual real GDP growth has been quite moderate. The Committee emphasized that the economic performance is expected to progressively recover, increasing to around 6.0% in real terms in 2014, on account of improved aggregate demand.
According to MPC, the BNR accommodative monetary policy stance currently implemented since June 2013 significantly contributed to increasing the financing to private sector, while inflation was kept low. Indeed, as a result of reducing the Key Repo Rate (KRR), credit to private sector has been significantly increasing on monthly basis.
On the foreign exchange market, according to MPC observation, the local currency (FRW) has had a slight depreciation of 1.0 percent as of 24th March 2014 compared to end December 2013. The Committee added that global stability in the exchange rate is expected in the second quarter of 2014, on account of increase in foreign exchange inflows.
Financial sector performing well
On the domestic front, the Financial Stability Committee (FSC) observed that the financial sector remains well performing and stable as it continues to be resilient to adverse changes as a result of adequate capitalization of financial institutions, with Capital Adequacy Ratio at 23.1 percent for banks, 33.4 percent for microfinance institutions and solvency ratio of 221 percent for insurance companies, while adequate liquidity is at 49.6 percent for banks, 80.5% for microfinance institutions and quick ratio of 278 percent for insurance sector as of end December 2013.
The committee stressed that the main contributing factors to the prevailing stability of the sector have been the strong regulatory framework in place, coupled with adequate supervision through continuous off-site and on-site inspections performed by the National Bank of Rwanda as well as regular prudential meetings.
Despite the financial stability maintained, the committee highlighted the need to continue strengthening the supervision and implementing the necessary reforms in pension, insurance, banking and microfinance institutions to cater for the dynamics of the market.