* Economy expected to grow 7.2 percent in 2010
* Inflation remains subdued for now
* Hopes to boost inter-bank foreign exchange market (Adds exchange rate system)
By Kezio-Musoke David
KIGALI, Nov 16 (Reuters) - Rwanda's central bank cut its key repo rate by one percentage point to 6.0 percent, the second reduction this year designed to stimulate lending to the private sector, according to a statement on Tuesday.
The bank's Monetary Policy Committee (MPC) said it planned to keep the lending rate on hold through the first quarter of 2011, when inflation rates in the central African country were likely to start picking up.
"One of the policies to encourage the increase of bank loans to private sector is to reduce incentives for banks to invest in the National Bank of Rwanda (NBR) and in government instruments by lowering the Key Repo Rate (KRR)," said the MPC statement.
"Consequently, the Monetary Policy Committee decided to reduce the KRR by 1 percentage point, from its current level of 7 percent to 6 percent, to be in force during the remaining part of 2010 and the first quarter of 2011," it said.
The central bank last cut the repo rate in March when it shaved off 50 basis points, saying it wanted to speed up the slow recovery.
IMPROVING MARKET EFFICIENCY
The bank also said it was eliminating the average reference rate for the Rwandan franc -- currently used as its rate for customers -- and unifying the market rate with its customer rate to boost the inter-bank foreign exchange market.
"NBR will operate with new buying and selling customer rates established as margins on either side of the previous day's closing market rate," the statement said.
"It is expected that this change will help in stimulating inter-bank foreign exchange market and improving market efficiency," it said.
Like other countries in the region, Rwanda's growth rates slowed in 2009 as the global economic slowdown hit industry and services. But the country's recovery has picked up in 2010.
Rwanda's economy expanded 9.4 percent in the second quarter, the fastest quarterly growth rate since the first three months of 2009, while inflation has remained subdued.
In each of the past four months, the consumer price index for all of Rwanda's urban and rural areas has fallen from the same period a year earlier. In October, prices were 2.28 percent lower than the same month in 2009.
In towns and cities, inflation has also been contained. The urban consumer price index for October showed prices were just 0.17 percent higher than a year earlier.
"While inflation has remained low, estimated at 0.17 percent in October on annual basis, it is projected at 1.4 percent in December 2010 and 4.0 percent in March 2011," the MPC said.
Gross domestic product growth in 2010 is expected to be about 7.2 percent after 6.1 percent expansion last year.
(Editing by David Clarke)