Tuesday, December 11th, 2018
Bank of Uganda (BoU) maintained the Central Bank Rate (CBR) at 10 percent, unchanged from the last announcement in October 2018. CBR is the rate at which BoU lends to commercial banks when they need cash.
BoU uses CBR to signal the direction of commercial bank lending rates. An increase in the CBR often leads to higher lending rates and a lower CBR may lead to reduced lending rates.
The BoU statement had some positive indicators about the economy
• Commercial bank lending rates are likely to stay the same (because the CBR did not change)
• The economy is growing faster than expected
• This a result of lower interest rates, government expenditure on infrastructure projects and improved agriculture production
• And is expected to continue over the coming years
• The expectation is for increased expenditure by the government and private sector into the future.
However, the economy faces a number of risks, including:
• Inflation, the rate of general increases, is a possibility
• Slow implementation of public investment projects, may reduce their beneficial impact
• Unpredictable weather conditions may reduce agricultural production
• Slowdown in performance of the global economy
• Slow growth in commercial bank lending to the private sector
• Increased Government borrowing, through Treasury Bills and Bonds, may further depress private credit growth and lead to increased interest rates.
The economy is returning to higher growth – the anticipated seven percent growth the highest it has been since the 9.4 percent registered in 2011. The central bank does not want to sabotage this progress and has elected to keep the CBR steady at 10 percent.
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