Demand for loans rises

KAMPALA. Although, interest rates remain high, statistics from central bank indicate that growth in Private Sector Credit (PSC) is growing at annual rate of 16.1 per cent, demonstrating high demand for loans and a pickup in economic activities.
The Central Bank in its monetary policy report highlights last week said on an annual basis, PSC grew by 16.1 per cent in February 2014, which is within the trajectory for FY 201415 of 15.6 per cent.
“Sustained growth in PSC is expected to support private consumption and investment, which will stimulate growth,” said the executive director of research Bank of Uganda, Dr Adam Mugume.
“However, trends in bank credit extension to the private sector continue to reflect tightening credit conditions for households while credit to Mining and Quarrying, manufacturing, building mortgage and construction remains buoyant,” he added.
The report shows that lending rates on Shilling-denominated loans have remained stable over the last year, averaging 21.5 per cent in the 12 months to February 2015.
The Central Bank monetary policy further indicates that the Shilling time deposit rate also remained fairly stable, averaging 10 per cent since July 2014, while Rates on foreign exchange-denominated deposits and loans were also fairly stable since July 2014.
In the foreign exchange market, the central says the depreciation pressures that started in December 2014 continued to March 2015.
As of March 2015, the shilling had depreciated by about 8.7 per cent on a trade-weighted basis and 16.5 per cent against the US dollar on year-on-year basis to an average of Shs2951.74 per US dollar.
Dr Mugume said depreciation pressures were attributed to: Global strengthening of the US dollar: strengthening of the US economy and likely increase in US interest rates that saw capital flow back to the US in anticipation of higher returns.
As at end March, 2015, US dollar strengthened by 28 per cent against the Euro, 18 per cent against the Japanese Yen, 12 per cent against the South African Rand and 11 per cent against the British Pound on year-on-year basis.
The Central Bank is concerned that the weak Shilling may nonetheless fuel inflation.

The cause
Worst depreciation. March 2015, saw the shilling registering fastest depreciation against the US in more than a decade. Dr Mugume explains that the depreciation of the shilling in March was mainly as a result of Panic buying and noise in the market on account of expectations about the future direction of fiscal and monetary policy continued exit of offshore players elevated dollar demand mainly from manufacturing, telecom, trading and energy sectors amidst lower inflows partly on account of lower international commodity prices.

moketch@ugnationmedia.com

SOURCE: Daily Monitor

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