Central Bank maintains lending rate at 11.5%

Kampala. Bank of Uganda yesterday announced that it will maintain the lending rate at 11.5 per cent for this month in a bid to support the marginal downward trend in lending rates for the last three months.

The flexible monetary policy that the Central Bank has been administering for the last three months has led to a significant decline in commercial lending rates, raising hopes for a further decline in the rates.

Bank of Uganda statistics indicate that lending rates, which had stabilised at 22 per cent since September last year to January this year, fell by 1.2 per cent in February. Addressing a news conference yesterday, the Governor Bank of Uganda, Mr Emmanuel Tumusiime-Mutebile, said: “Average bank lending rates for shilling denominated loans fell to 20.8 per cent in February 2014, the lowest level since mid-2011. Nevertheless, a faster recovery in credit growth may be impeded as banks focus on improving credit quality.”

Slow credit growthMr Mutebile said the growth of commercial bank credit to the private sector picked up slightly in February but remains sluggish, with year-on year growth of 6.8 per cent, which was below the Bank of Uganda projections at the beginning of 201314.

At the beginning of the Financial Year 201314, the Central Bank set a target of having private sector credit growth grow by 15 per cent.

On the inflation outlook, Mr Mutebile explained that annual core inflation is projected to increase gradually over the course of the next 12 months, to a range of 6-7 per cent by April 2015, driven mainly by rising prices of traded goods as a result of the strengthening of the demand and the recent nominal exchange rate depreciation.

“The medium term outlook for annual core inflation is uncertain but projected to remain around the target rate of 5 per cent,” he forecasted.

SOURCE: Daily Monitor

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