Israel Arinaitwe, Stanbic Bank’s Head of Consumer Banking, says the effects of the high CBR started being felt towards the end of the year but hopes that as inflation slows down, lending the Rate will also fall and banks will lower theirs too.
Commercial banks have to find ways of balancing between a high Central Bank Rate by the Bank of Uganda and keeping their borrowing customers in comfortable positions.
In August last year, banks started notifying their existing and future clients of their plans to rise their interest rates in the wake of the sustained increment in the CBR, a tool that the BOU has been using to stop inflation from getting out of hand.
When the CBR, the rate that the BOU uses to direct trends in the financial industry, rose from 6.5 percent to 10 percent between June and December 2022, inflation jumped from less than 3 percent at the beginning of the year to 10.7 percent.
The aim, according to BOU Deputy Governor, Michael Atingi-Ego, was to influence a rise in the cost of credit and, in turn, discourage borrowing to control the amount of money available to the general public. Experts argued that this was wrong because inflation was not a result of the amount of money in circulation, but was a result of the high cost of imported essential commodities, especially petroleum products.
This made matters worse for ordinary households and businesses as the lowest prime lending rate jumped from 17 percent to 19 percent currently. Israel Arinaitwe, the Head of Consumer Banking at Stanbic Bank, says the effects of the high CBR started being felt towards the end of the year but hopes that as inflation slows down, CBR will also fall and banks will lower theirs too.
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Dr. Atingi-Ego, the Deputy Bank of Uganda Governor, says the inflation rate, recorded at 10.2 in December is a sign that the Bank’s Monetary Policy is working, in addition to the improving global situation.
“The recent readings show that inflationary pressures are losing momentum, driven mainly by the declining crude oil prices, easing supply-side challenges, a stable exchange rate on account of the prudent monetary policy actions by the Bank of Uganda (BoU), softening domestic demand, and diminishing base effects associated with higher prices of imported commodities,” he says.
Emma Mugisha, the Stanbic Bank Executive Director expresses hope that the fall in inflation would be sustained and, according to her, the increasing activities in the oil and gas sector should revive the economy.
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BOU also does not rule out a return to a spiral in inflation this year and says that it will respond appropriately but cautiously. “Any future adjustment to the CBR will depend on the incoming inflation and economic growth data but will be measured and gradual to maintain support for sustainable economic growth in an environment of price stability,” says the Bank of the December economic performance report.
The Deputy Governor says he expects the desirable rate of inflation to be achieved by the end of the year. “Our recent forecasts show that inflation will average between 6-8 percent in 2023, down from averages of 7.2 percent and 6 percent for annual headline and core inflation in 2022. Inflation is expected to revert to the medium-term target of 5 percent by end-2023," he said.
Mugisha says that there is a need to ensure that banks have creative products that would help the public and the economy generally to recover from the effects of the hard economic situation experienced in the last year. Recently, Stanbic waived interest charges on loans that were held by school owners through the two-year Covid-19 lockdown period, totaling 1.5 billion Shillings.
Now, it has followed it with a new product that schools, suppliers, and parents can borrow without collateral. The product dubbed ‘Wumula Stress’ also allows the borrowers a 75-day period before commencing repayment while the repayment period has been extended to 84 months or seven years.
Other offers include insurance packages for schools and child health. School owners are also being encouraged to apply for the Stanbic Bank School Comprehensive insurance which covers them against hazards such as fires, floods, and accidents.
“In the past, we have seen cases of schools getting burnt, school buses overturning, and many other calamities; our Stanbic School Comprehensive product is designed to protect you from such and ensure business continuity,” said Dogo Singh, the Head of Bancassurance.
Dogo added that for parents seeking to relieve themselves from the stress that comes with paying out of pocket when children fall sick, the Stanbic MediProtect would help.
“Most Ugandans don’t have medical insurance mainly because it is expensive. Therefore, we created an affordable solution called ‘MediProtect’ in partnership with Prudential. With as low as 600, 000 shillings, a parent can have their child insured for a year, relieving you of the stress that comes with paying for hospital bills out of pocket,” added Dogo.
