2.2.4 Money supply
In such context, monetary expansion exceeded markedly the
level initially anticipated, the financial year under review having been marked
by an over expansion of money supply estimated at 16.1% against real GDP growth
of 3.4%.
Owing to the very high domestic financing of budget deficit,
the growth of money supply exceeded the target of 9.2% anticipated in the
monetary program for the year.
Figure 3: Development of
money supply (in billions of RWF)
Source: NBR, Research department
During the year, money supply recorded a saw tooth development
during the first half of the year, and a strong and continuous growth during
the second half. By end of May 2003, money supply stood at RWF 150.5 billion,
an increase of 4.5% compared to the situation at the end of December 2002. The
development observed during the first half of the year was in keeping with the
growth of 9.2% targeted for the whole year.
During the second half of the year, however, money supply
recorded a fast and sustained evolution.
This development was a result mainly of the Government
resorting to increased financing by the banking sector due to increased
expenditure necessitated by the political timetable and irregular external
financing ( NBR, Annual report,2003, p.47).
2.2.5 Exchange rate
Concerning the exchange rate policy for 2010, the priority of
the National Bank of Rwanda remains to maintain a stable and predictable
exchange rate of the RWF, and ensure that it remains fundamentally market
driven.
BNR will continue to intervene on the market by
selling and buying foreign exchange to banks to smoothen the RWF
exchange rate volatility depending on the market demand and the volume of
official foreign exchange reserves available.
Thus, in case there is an unexpected balance of payments
pressures, it will require policy flexibility to maintain macro-economic
stability and adjust to shocks.
More specifically, flexible exchange rate policy and
proactive monetary policy will be reinforced, in order to avoid possible
strong external shocks from higher imports or declining foreign exchange
inflows which could lead to excessive reserve losses.
However, as previously, the BNR's interventions on foreign
exchange market should be in line with its monetary policy objective of low
inflation. Indeed, the Central bank sales and purchases to or from commercial
banks will be maintained among important tools to be used in 2010 to regulate
the banking system liquidity.
Regarding the Forex market infrastructure development, the BNR
will continue the process of modernization of operations, by introducing a
communication platform such as Reuters and other market technologies to enhance
the market-determined Foreign exchange system (NBR, Monetary policy and
financial stability statement, February 2010, p.30).
2.2.6 Interest rate
With the consolidation of comfortable short term liquidity in
the banking system since the second half of 2009, money market interest rates
have been recording a declining trend. The average Repo rates fell from 7.3% in
January to 4.4% in December 2009. Regarding the commercial banks rates,
banks become aggressive in deposits collection and increased
deposit interest rates, between January and December
2009, from a monthly weighted average of 5.5% to 8.54%, after reaching a
high level of 9.94% in July. Lending rates have been also increasing since
January 2009 to reach 17.4% on average, before declining to 15.77% in December
2009.
This upward trend in lending rates in 2009 is linked to the
uncertainties in credit markets, on both demand and supply sides, as the
nonperforming portfolio has increased. As inflation rate in Rwanda has been
significantly declining in 2009, banks real lending and deposit rates remained
positives (NBR, Annual report 2009, p.48.)
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