THE Treasury Bill rates have doubled to new highs as the Bank of Uganda maintains a tight monetary policy to manage the country’s inflation, a bank official has revealed.
A rise in the rates signals a general shift in preferences of the commercial banks from lending depositors money to investing it in Treasury Bills, which are risk free.
“The rise in the rates is due to a tight monetary policy stance and inflation. This should spill over into commercial banks’ lending rates and, therefore, limit to some extent demand for credit. This this is exactly what tight monetary policy stance implies,” said Dr. Adam Mugume in an interview with NewVision.
He was responding to sections of the April 2011 monthly report that indicates a rise in 91 day Treasury Bill rates to 9.2% in April, from 4.1% in April 2010.
Similarly, the 182-day and 364-day Treasury Bill rates have risen to 10.4% and 10.2%, from 5.5% and 7.3% respectively over the same period.
The report indicates that the average commercial bank lending rates on domestic currency denominated loans rose by 39 basis points to 19.97% in March even as interest rates on demand deposits remained relatively stable at 1.18% for most commercial banks.
The Central Bank has increased the supply of the monetary instruments holding two Treasury bill auctions in April, totalling sh190b up 63% in value, from sh70b in March last year. All issues were oversubscribed.
“Going forward, a continued rise in yields on government securities will have adverse implications for interest costs to government,” the report cautions.