KAMPALA- The Bank of Uganda (BoU) yesterday said the commercial bank lending rate has reduced to 17.7 per cent, the lowest rate ever recorded in the country in close to 10 years.
BoU said this follows the easing of monetary policy that has been in place since February 2016.
The fairly lower interest rate in the country was last recorded in September 2010 at 19.57 per cent.
Speaking during the release of the monetary statement for the month of August, the governor BoU, Mr Emmanuel Tumusiime-Mutebile said: “Indeed, weighted average lending rates fell to 17.7 per cent in June 2018 from 25.2 per cent in February 2016, when Bank of Uganda started easing monetary policy.”
He added: “The BoU composite index of economic activity (CIEA) projected robust growth in the first half of 2018, with annualised growth of about 6 to 6.5 per cent.”
Mr Mutebile said BoU stayed Central Bank Rate (CBR) at 9 per cent for the next two months given the objective of keeping inflation close to the target and the need to contribute to attaining sustainable economic growth.
He said economic growth continues to strengthen and that the real Gross Domestic Product (GDP) growth for financial year 2017/18 is estimated at 5.5 per cent, compared to 3.9 per in financial year 2016/17. “Economic growth is projected to strengthen further in financial year 2018/19 to 6 per cent and to an average of about 6.3 per cent over the medium-term, supported by public infrastructure investments, improving agricultural productivity, recovery in Foreign Direct Investment (FDI), and strengthening private sector credit (PSC) growth partly as consequence of the monetary policy easing,” he said.
He added that although public investment programmes could substantially raise output and be self-financing in the long run, transitional challenges of funding these investments can be formidable, and may crowd out private investment and consumption, thus delaying the growth benefits of public investment.
The executive director of research at Bank of Uganda, Mr Adam Mugume, said high government domestic borrowing of Shs18 trillion from the domestic market using treasury bills and bonds will cause the interest rate that had come down rise again.
“Outlook for the interest rate indicates that interest rates are expected to rise; on a one year government security it is now 14.5 compared to 9 per cent one year later.”