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BOU Cuts Lending Rates :: Uganda Radionetwork
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BOU Cuts Lending Rates

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The Bank of Uganda has reduced the benchmark lending rate for December 2013 to 11.5 percent. In the last monetary policy statement for 2013, Dr Louis Kasekende, the Deputy Governor Bank of Uganda described the move as an “accommodative monetary policy stance.”

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The Bank of Uganda has reduced the benchmark lending rate for December 2013 to 11.5percent.

 

In the last monetary policy statement for 2013, Dr Louis Kasekende, the Deputy Governor Bank of Uganda described the move as an “accommodative monetary policy stance.”

 

This is the first rate reduction since June 2013, driven by a need to boost private sector investment especially since the economy is still perceived to be growing potential.

 

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Easing inflationary pressures have partly played a role in the decision made by Central Bank to cut the benchmark lending rate. Headline inflation declined to 6.8percent in November 2013 sustaining a three-month drop. Core inflation declined marginally to seven percent from 7.1percent in October 2013, still within the medium term approach of Bank of Uganda. Over the next 11 months, the central bank had projected that inflation would stay in the region of 6.5 to 7.5 percent falling back to about 5 percent in 2015.

 

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Over the last 12 months, Bank of Uganda has maintained a cautionary stance on the benchmark lending rate, or the central bank rate, at an average of 12 percent for most of the year. The only other rate in the year was 11 percent recorded in June, July and August 2013. On whether the commercial banks will reduce their lending rates by at least 50 basis points, the deputy governor believes that the rate cut should influence their decisions.

 

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Commercial bank lending rates have been dropping rather sluggishly and are at an average of 20 percent according to BOU statistics. As the holiday season gets close, private sector borrowing and consumer consumption is likely to increase. Household consumption has been weak, which has been visible in the strengthening of the Uganda Shilling against the Dollar for the last five months.

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