BoU Governor Prof. Emmanuel Tumusiime-Mutebile
The Bank Lending Survey results for March 2021 shows that, overall, banks expected lending rates to remain unchanged, the Bank of Uganda (BoU) has said in its latest Monetary Policy Report.
Although the Central Bank Rate (CBR), a benchmark lending rate for commercial banks has been at 7% for more than a year, the average lending rate for banks has remained high at 19%.
On Wednesday, BoU reduced the Central Bank Rate (CBR) by 0.5% percentage point to 6.5%.
On why the the CBR was reduced, BoU Governor Prof. Emmanuel Tumusiime-Mutebile said: “…the economic recovery continues to require monetary policy support until economic slack is absorbed so that the 5 percent inflation target is sustainably achieved.”
In its Monetary Policy report, BoU says commercial bank lending rates have been a sustained gradual decline, reflecting the
accommodative monetary policy stance.
“It however, picked-up slightly in the quarter to Apr-21. Lending rates on Shilling loan rose to an average of 18.9% from 18.1% in the quarter to Jan-21,” the report says.
It adds: “Lending rates on forex loans also rose to an average of 5.9% from 5.4% in the quarter to Jan-21.”
The report adds that Private Sector Credit (PSC) is on a sustained, but gradual increase since August 2020, reflecting the
accommodative monetary policy stance, impact of the Credit Relief Measures (CRMs) and a recovery in economic activity.
“In the quarter to April 2021, total PSC net of revaluation grew by 10.1% up from 8.7% in the quarter to Jan-21,” the report says, adding: “Net of capitalised interest, PSC grew by 9.5% in the quarter to April 2021 up from 8.2% in the quarter to January 2021.” The report adds that Manufacturing, Personal and Household loans are the main drivers of the PSC growth.
It adds that although the value of loan applications received increased in the quarter to April 2021-suggesting recovery in economic activity, the value of loan approvals fell, pointing to risk aversion and unfavorable financial conditions of the applicants.
