Uganda: Bank of Uganda Increases Lending Rate to 16 Percent

The Bank of Uganda has increased its lending rate to 16 per cent from 14 per cent in August, signaling a further increase in interest rates by local commercial banks by 2 percentage points. "With this further increase in the Central Bank Rate (CBR), we expect lending rates to be adjusted upwards. I don't want to dictate to commercial banks but we expect a response," Dr Louis Kasekende, the deputy governor Bank of Uganda said at a press conference in Kampala on Tuesday.

Dr Kasekende said, the increase has been made to counter the double digit inflation -the general rise in prices of goods and services, in the economy. "We are tightening because we are worried this inflation is still high," Dr Kasekende said. Uganda's inflation rose to 21.4 per cent last month from 18.7per cent in July on the back of rising food and fuel prices as well as the depreciation of the shilling against the dollar. BoU targets an inflation rate of 5 per cent per annum.

Following an increase in the CBR from 13 per cent in July to 14 per cent in August, commercial banks increased their lowest lending rates from as low as 19 per cent to as high as 22 per cent. Some of the banks that immediately responded to the BoU move include; Stanbic Bank, Barclays Bank, and Tropical Bank.
Dr. Adam Mugume, the director for research said, the tighter monetary policy is targeted at the private sector. "It's not that the Central Bank is trying to hurt the private sector but helping it by trying to limit effects like inflation which could hurt them," he said at the press conference. To the consumers he said, "Tighter monetary policy means: reduce consumption and increase savings."