BOU Maintains Lending Rate at 11%

2088 Views

In short
The Shilling has been under pressure from the Dollar due to the demand for the latter on the international market. This has been coupled with rising demand for imports as the holiday season approaches.

The central bank of Uganda has opted to maintain the Central Bank Rate at 11% following the depreciation of the Uganda Shilling by 9% so far this year.

This, as a result of fears that the Uganda Shilling could further depreciate in 2015 and while consumer spending rises.

The move by BOU to stay the lending rate is in line with projections made by economists. "With the shilling projected to weaken further, BOU will be cautious given the impact on price increases in the import intensive factors going forward," s Stephen Kaboyo, Managing Partner at Alpha Capital Partners says.

The Shilling has been under pressure from the Dollar due to the demand for the latter on the international market. This has been coupled with rising demand for imports as the holiday season approaches.

Addressing a media briefing this afternoon Prof. Emmanuel Tumusiime-Mutebile Governor BOU, said these are applying pressure on inflation.

//Cue in: Core inflation is expected to rise...
Cue out: ...harvests are poor next year//
 
The benchmark lending rate for most of this year has been at 11%. The implication on borrowing by private sector has been at positive, according to Dr Adam Mugume the Director Research at BOU.
 
//Cue in: Credit to the private sector...
Cue out: ...increment in credit growth//
 
Dr Mugume also notes that in 2015, the Shilling depreciation will not be as rampant as it was this year.
 
//Cue in: If we have further depreciation...
Cue out: ...faster pace of depreciation//
 
Uganda imports more than it exports, and when the Shilling weakens, it makes imported goods like clothes, factory inputs and processed foods more expensive for consumers. With rising prices, it results into higher inflation.

BOU also still projects the economy to grow by 5.5% in 2014/15 even with the likelihood of reduced demand for Uganda's exports and reduced Foreign Direct Investment (FDI).