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Demand For Credit Falls Amid Tough Business Environment

The Demand and Supply of Credit fell in the 3 months to Feb 2024 (DD fell to UGX 5.12 tn from UGX 6.21 tn and SS fell to UGX 3.22tn from UGX 3.66 tn in the previous quarter), Bank of Uganda’s Monetary Policy Report for April 2024, indicates.

“PSC (Private Sector Credit) growth net of valuation and capitalized interest remained subdued and fell to7.7% in the 3 months to Feb-2024 from 8.5% in the 3 months to Dec 23,” the report says.

However, the weighted average Shilling lending rate declined to 17.73% in 3-months to Feb-2024 from 18.21% in the 3-months to Dec-2023, mainly driven by lending to prime corporates.

“Interbank money market rates rose in the 3- months to Mar-24 compared to 3-months to Dec-23 partly attributed to tight financial conditions.( 7-dayWAR increased to 11.19% from 10.70%.),” the report says.

It adds that yields on government securities increased as government accepted relatively higher yields in the most recent auctions and tight monetary policy.

The 91-day stood at 9.7% in quarter to March 2024 from 9.6% in quarter to December 2023 and the 364-day stood at 13.2% from 12.9%.

Exchange Rates

According to the report, the depreciation pressures subsided in March 2024 vs Feb 2024 due to monetary policy actions, the relatively higher treasury yields and positive news of anticipated budget support loans as well as continued FDI inflows.

“In March 2024, the UGX/USD depreciated by 0.6% m-o-m, 2.3% q-o-q ,and 4.0% y-o-y,” the report says, adding: “However, the exchange rate remains vulnerable due to strong demand, global financial markets and offshore exits from the domestic market for more attractive rates in regional markets.”

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