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Bank of Uganda holds key rate at 12 pc

Friday May 03 2013
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A Bank of Uganda information officer attends to visitors at her stand during a Banking and Insurance Expo in Kampala. Bank of Uganda (BoU) on Friday maintained its benchmark rate at 12 per cent for the sixth consecutive month, dashing borrowers hopes for further lending rate reductions from banks. Photo/File

Bank of Uganda (BoU) on Friday maintained its benchmark rate at 12 per cent for the sixth consecutive month, dashing borrowers hopes for further lending rate reductions from banks.

Banks partly use the Central Bank Rate as a guide for its lending rates to consumers because it is the rate that banking regulators use as a benchmark for what it will extend short term loans to the banks.

BoU said that its decision to maintain the benchmark rate at 12 per cent was informed by risks of a higher cost of living and higher projected energy costs which may cause the rate at which prices of basics rise to trend upwards.

“There are potential risks of stronger inflationary pressures emanating from both domestic and external factors. These include the uncertainty in the global economy, upside risks to global commodity prices and a stronger stimulus to domestic demand from the public and private sectors,” said Prof Emmanuel Tumusiime-Mutebile, BoU’s governor.

He said that energy prices are projected to rise in the near term and that this will have a one-off impact on the price level but it may also have more persistent second round effects on inflation.

The inflation rate dropped to 3.4 per cent in April from 4 per cent in March after it had edged up from 3.5 per cent in February.

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Prof Tumusiime-Mutebile said that commercial bank lending has been restrained by structural factors including those associated with the closure of the Land Registry.

“As these constraints are alleviated, we expect growth in lending to accelerate. Lending rates have continued to decline but I believe that there is still room for further reductions,” said Prof Tumusiime-Mutebile.

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