Private Sector Credit (PSC) growth is expected to decline in the coming months due to the tightening monetary conditions, the Bank of Uganda (BoU) has said in its Monetary Policy Report for July 2022.
This after BoU increased its Central Bank Rate (CBR) by one basis point to 8.5 percent so as to stablise inflation around the [5%] target. The CBR is a benchmark lending rate for commercial banks. This means, going forward, banks are expected to increase lending/interest rates.
“Adjusting for the exchange rate changes, year-on-year growth in PSC averaged 9.5% in the quarter to May 2022, a slowdown from the 9.9% growth in the quarter to February 2022,” the report reads in part.
It adds: “ At 9.5 percent, the annual growth of PSC remain low and is about half the historical average…Credit growth is strongest in Personal and Household, and Building and Mortgages although is slowing down.”
The report adds that lending rates on shilling loans declined to 18.3 percent in May 2022 from 18.8 percent in April 2022, while Forex lending rates declined to 6.0 percent in Quarter to May 2022 from 6.2 percent in Quarter to February 2022.
“The effects of changes in the CBR, CRR and NOP are anticipated to have a lagged effect on the lending rates in the coming months,” the report says.
According to BoU, overall, economic activity is projected to remain modest as the shocks to commodity prices, production and distribution disruptions, and global inflation continue to dim the prospects for domestic economic growth.
“Economic growth is still projected in the range of 4.5-5.0 percent in 2022 and rising slightly to 5.0-5.5 percent in 2023, in part supported by public investments,”BoU Deputy Governor, Dr. Michael Atingi-Ego said last week.
He added: “Weaker external demand, high domestic inflation and resultant tighter domestic financial conditions will constrain exports, consumption, and investment.”
He added that the June 2022 preliminary GDP estimates by the Uganda Bureau of Statistics (UBOS) indicate that the economy grew by4.6 percent in Financial Year 2021/22 from a revised growth rate of 3.5 percent the previous year.
