Lending rates have declined by 5 per cent, a drop that Bank of Uganda says will increase economic activities. High interest rate has been a constraint to investments in the economy since most people had been locked out of the credit market.
Presenting the monetary policy for August, the Governor Bank of Uganda, Mr Emmanuel Tumusiime-Mutebile, said: “The decline in lending rates from 27 per cent a year ago to 22.6 per cent in June 2013 will contribute to increasing private sector investment and strengthening of economic growth over time, which is consistent with achieving the inflation objective of 5 per cent.” “Therefore, economic activity is projected to gradually regain some momentum in the later part of 2013/2014 and projections of medium to long- term growth paint a robust growth,” he said.
Due to improvement in the macroeconomic indicators leading to relative economic stability, Uganda’s real economic growth is forecast to increase to 6 per cent in 2013/14.
However, Mr Mutebile said downside risks to growth remains from both the global environment, especially a pick in oil and from domestic environment is weak demand for goods. “The decline in private sector imports in the first six months of 2013 coupled with relatively subdued pace of credit extension suggests a softening of aggregate demand,” Mr Mutebile said.
The global and local factors have seen the central bank leave the Central Bank Rate at 11 per cent for the month of August.
In July 2013, central bank stated that there will be a slight pickup in Uganda’s inflation rate. Mr Mutebile yesterday said the growing inflationary pressures originate from domestic supply-side, along with the prospects of increase in oil prices.
The central bank forecasts suggests that annual headline and core inflation is likely to increase in the next three to six months largely driven by the effect of drought on domestic food production and prices.
The Executive Director of Research at Bank of Uganda, Dr Adam Mugume, said banks are granting loans only to their most creditworthy clients, slowing the recovery.