This research attempts to empirically examine the bank-lending channel in monetary policy transmission in Rwanda, using quarterly data for the period 1996Q1 to 2011Q4. The responses of the loans supply, real output, prices, and deposits to monetary policy innovations were investigated in this research, using impulse response functions and variance decompositions obtained from a Vector Autoregressive model (VAR). Estimation results revealed that the bank lending channel in Rwanda is less effective. The findings suggest that although monetary policies working through interest rates have a significant effect on bank loans, loans appear to not influence the real output level. As in other developing economies, the financial sector in Rwanda is still weak. As a result of the absence of long- term investment, bank customers bear the risk associated with the poor quality of loans in addition to the risk associated with high and variable inflation. These are likely to hamper the monetary policy transmission mechanism.

In 2007, the government of Rwanda launched a medium-term programme of four years, as stated in its Economic Development and Poverty Reduction Strategy (EDPRS). A part of this programme is a prudent monetary policy which is one of the responsibilities of the National Bank of Rwanda (NBR), especially via its role of controlling liquidity in the national economy for ensuring macroeconomic stability. The National Bank of Rwanda adjusts base money to ensure that the level of the monetary aggregate M2 is consistent with price stability. To effectively implement this monetary policy, two conditions are necessarily required: (i) a stable demand function for money; (ii) a stable long-run relationship between the money stock and the price level. Using a cointegration analysis we investigated the effectiveness of this policy through examining whether these two conditions are fulfilled for the years 1996:Q1 to 2008:Q3. This study confirmed the stability of the money demand function and found that the money stock in the Rwandan economy and prices trend together in the long-run. Thus, targeting the monetary aggregate M2 is a good indicator of the price level. Moreover, we found that at a five point six per cent (5.6%) significance level, the Rwandan money market needs 3.5 quarters to eliminate a half disequilibrium discrepancy in the money demand model. At a six point five per cent (6.5%) significance level, the Rwandan money market needs 4.5 quarters to eliminate a half disequilibrium discrepancy in the money supply model. Monetary policy implemented by the National Bank of Rwanda remains effective as it is still possible to achieve the overall objective of price stability through targeting the monetary aggregate M2. / Thesis (M.Comm.)-University of KwaZulu-Natal, Pietermaritzburg, 2010.

This study attempted to examine the nature of the relationship between high levels of external debt and capital accumulation with the case study of Rwanda.

This study attempted to examine the nature of the relationship between high levels of external debt and capital accumulation with the case study of Rwanda.