Uganda’s Central Bank has kept its policy rate at nine per cent at its first Monetary Policy Committee meeting of 2020. This reflects opportunities for stronger credit growth and a stable exchange rate but falls short of being an economic stimulus.

“Our policy rate was around 13 per cent in late 2018 but has since dropped to nine per cent today. Prime lending rates have also dropped from 23 per cent to about 18 per cent during the same period,” said BoU’s executive director for Research Dr Adam Mugume. “But monetary policy transmission patterns take long to feed into the economy as banks move to adjust to changes in policy rates, borrowers’ terms and conditions plus fairly long turnaround times experienced during disbursement of funds to selected borrowers.”

Soft policy actions pursued by BoU since 2018 have led to notable declines in interest rates, a lending frenzy among big banks seeking to exploit cheaper funds in the interbank market to grow their loan portfolios and muted growth in default rates.

Strong rains that boosted food harvests last year have tamed headline inflation rates, to an average 3.7 per cent, over the past three years, which below the annual policy target of five per cent.

While private sector credit flows grew by 12 per cent as at the end of 2019 compared with 5.7 per cent in 2018, headline inflation — a measure of average changes in local food prices — dropped from 3.6 per cent in December to 3.4 per cent in January according to data from the Uganda Bureau of Statistics.