All eyes are shifted to Bank of Uganda (BoU) as the day approaches for the latest assessment for the Central Bank Rate (CBR) by the Monetary Policy Committee. The concern will be whether BoU will support and stand firm the ground lower borrowing costs by the business sector.
At present the CBR stands at 11 per cent and the betting is BoU will leave it unchanged in the wake of the expected spike in government spending under the new budget. However, most economists do not see a hike.
Last month Emmanuel Tumusiime Mutebile, the BoU Governor told the Uganda Bankers Association, “I believe that we should have scope to implement further modest reductions in the CBR in the near future, although again I want to stress the caveat that any further reductions are contingent on there being no worsening of the core inflation forecast.”
It is the CBR that most financial institutions use as a benchmark to determine their own prime rates. Currently, Stanbic Bank Uganda is posting the lowest at 19.5 per cent, with Bank of India at 20 per cent; Barclays at 20.25 per cent; Ecobank at 20.5 per cent and United Bank of Africa (Uganda) at 20 per cent. NC Bank charges the highest at 25 per cent. The CBR is also intended to guide short-term inter-bank lending rates and consequently influence the marginal cost of funds for commercial banks.
In April, BoU cut the CBR by 0.5 percentage points to 11 per cent , citing falling inflation levels. Adopted in 2011, the BoU inflation-targeting policy is focused on reining in annual core inflation to 5 percent. BoU Governor Mutebile said in April; given that core inflation is forecast to remain around the medium term target of five percent and in line with efforts to support private sector credit and economic growth momentum, BoU believes that there is scope to continue easing monetary policy.