1.2. Statement of the
problem
The economic growth toward development has been a major
concern of the government of Rwanda by putting a lot of efforts to sustain
Rwandan economy and to improve social welfare. Even though Rwandan economy has
recovered considerably since the 1994 genocide; the GDP per capita is still
low, around 460 US$, and over 56 percent of the population live under the
poverty line. The agricultural sector, employing more than two-third of the
population is underdeveloped and its contribution to GDP is still small,
accounting less than 35 percent. The industry sector too seems not to be in a
good position to be an alternative measure since it remained on infant stage
and its contribution to GDP has never reached 20 percent. Like many other
developing countries, Rwanda was also affected by global economic recession and
negative effects were particularly observed in its export sector through low
international commodity prices.
The economic declines significantly while the agriculture
sector performed well boosted by favorable weather conditions and government
green revolution program, the tightened credit conditions in the banking
system.
Despite the negative effect of the global economic recession
on the external sector, Rwanda managed to record a positive balance of payment,
banks to relatively important foreign capital inflows. These inflows offset the
current account deficit and allow Central bank to keep a comfortable external
position with gross official reserves.
To avoid deeper decline of the growth rate, policy measures
were undertaken by government and National Bank of Rwanda. While government
kept momentum to stimulate agriculture production, the appropriate policy
measures have been taken by central bank for addressing the liquidity crunch
and credit to private sector conditions, with the objective of restoring
confidence in the bank system.
1.3. Significance of the
study
.
This research helps the student in partial fulfillment of the
requirements of attaining a bachelor's degree and also enabled him to gain more
knowledge in handling complex problems of management.
The study was intended to encourage the policy makers to
closely examine the reasons why the National Bank of Rwanda must put in
practice its influence on financial sector for economic stability especially by
using monetary policy.
At academic level, this work will constitute an important
source of data, both theoretical and practical to researchers, students from
different faculties, and all the whole community.
This topic has also the interest to know the relationship of
monetary policy and other macroeconomic variables.
1.4. Hypothesis
Hypothesis is an early response to questions that arose in
the problem and must be confirmed to achieve a result.
By excess money supply, however there are other factors like,
low level of production, high wages, high level of import rising market prices,
nominal exchange rates, and macroeconomic instability, etc.
Accordingly, we argue that monetary policy is probably best
served by drawing models that summarize different paradigms of the transmission
mechanism, or that use of different technical approaches to represent the
transmission mechanism. Taking such strategy, diversified approach to inform
policy judgments is likely to reduce the risk of making serious policy
errors.
.
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