Bank of Uganda Headquarters in Kampala has kept its policy rate at nine
per cent at its first Monetary Policy Committee meeting of 2020. PHTO |
FILE | NATION MEDIA GROUP
Uganda’s Central Bank has kept its policy rate at nine per cent
at its first Monetary Policy Committee meeting of 2020. This reflects
opportunities for stronger credit growth and a stable exchange rate but
falls short of being an economic stimulus.
“Our
policy rate was around 13 per cent in late 2018 but has since dropped
to nine per cent today. Prime lending rates have also dropped from 23
per cent to about 18 per cent during the same period,” said BoU’s
executive director for Research Dr Adam Mugume. “But monetary policy
transmission patterns take long to feed into the economy as banks move
to adjust to changes in policy rates, borrowers’ terms and conditions
plus fairly long turnaround times experienced during disbursement of
funds to selected borrowers.”
Soft
policy actions pursued by BoU since 2018 have led to notable declines in
interest rates, a lending frenzy among big banks seeking to exploit
cheaper funds in the interbank market to grow their loan portfolios and
muted growth in default rates.
Strong
rains that boosted food harvests last year have tamed headline
inflation rates, to an average 3.7 per cent, over the past three years,
which below the annual policy target of five per cent.
While
private sector credit flows grew by 12 per cent as at the end of 2019
compared with 5.7 per cent in 2018, headline inflation — a measure of
average changes in local food prices — dropped from 3.6 per cent in
December to 3.4 per cent in January according to data from the Uganda
Bureau of Statistics.
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