Uganda Cuts Benchmark Rate as Growth Fails to Meet Target
Uganda’s central bank reduced its benchmark rate for a seventh consecutive time to support economic growth and encourage banks to lend more to the private sector.
Policy makers at the Bank of Uganda cut the rate by 50 basis points to 11 percent, extending an easing cycle that began in April 2016. They have reduced the rate by a total of 550 basis points at the past six meetings.
“Given that core inflation is forecast to remain around the medium-term target of 5 percent and in line with efforts to support private-sector credit and economic-growth momentum, the Bank of Uganda believes that there is scope to continue easing monetary policy,” Governor Emmanuel Tumusiime-Mutebile told reporters in the capital, Kampala.
Economic growth in the fiscal year through end-June is unlikely to hit the 4.5 percent target, the governor said. The Finance Ministry expects a recovery in output, with projections of between 6 percent and 7 percent in the coming fiscal year.
Lending to business and individuals contracted 0.9 percent in December, according to the Finance Ministry. Total private-sector loans rose 7.5 percent in February from a year earlier and 5.3 percent in January, Nairobi-based Stanbic Holdings Ltd. said in an emailed note Wednesday.
“A notable concern for the MPC over the past year or so has been the slower pace in private-sector credit growth fueled by the sharp rise in banking sector non-performing loans,” Jibran Qureishi, Stanbic Holdings’ East Africa economist, said in the note.
Reducing the rate, on its own, might not give credit extension an immediate boost, according to Razia Khan, Standard Chartered Bank Ltd.’s chief economist for Africa. Ugandan lenders have been asked to increase their minimum core capital to 10 percent of risk-weighted assets from 8 percent, following the collapse of Crane Bank Ltd. in October, which was under-capitalized.
The Ugandan currency gained 0.1 percent to 3,617.90 shillings per dollar by 1:16 p.m. in Kampala, the biggest advance since March 15, according to data compiled by Bloomberg.