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BoU Introduces Standing Lending Facility For Banks With Short Term Liquidity Needs

BoU Governor Prof. Emmanuel Tumusiime-Mutebile

The Bank of Uganda (BoU) has approved the establishment of a Standing Lending Facility/Window at the BoU for banks with short-term liquidity needs, in a bid to support monetary policy operations and keep interbank interest rates within the CBR (Central Bank Rate) band.

In a notice to banks detailing guidelines to access the facility dated September 3, 2020, BoU Governor Prof. Emmanuel Tumusiime-Mutebile said the purposes of this facility is provide liquidity during normal times, separate from the Lombard facility/ lender of last resort, which is intended for banks in liquidity distress requiring funds for a longer duration  of time.
According to the guidelines of accessing the facility, only tier one institutions (commercial banks) shall access this facility.

“Access to the facility shall be at the initiative of commercial banks that require liquidity; however, BoU reserves the right to set   terms, conditions and limits on the amount that a bank can access,” Mutebile wrote, adding that all applications should be addressed to BOU Executive Director Operations copied to Director Financial Markets.

What Standing Lending Facility Means

Analysts say BOU has reformed its operational framework by introducing a Standing Lending Facility (SLF) to commercial banks as part of its response to likely impairment in the financial markets that could emerge due to financial disruption caused by COVID-19.

Stephen Kaboyo, an analyst and Managing Director at Alpha Capital Partners says the SLF is a facility that lends on a bilateral and demand basis rather than the typical open market operations such as scheduled auctions.

“SLF technically serve as a monetary policy tool to limit upward pressure on interest rates by providing loans to individual banks that might occasionally run into urgent funding need. At the same SLF has a financial stability role of providing liquidity to the financial sector during crisis times,” Kaboyo says, adding: “This reform will go a long way in addressing price distortions at the short end of the market.”

Taddewo William Senyonyi
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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