Uganda Keeps Key Lending Rate Unchanged For Second Meeting

Uganda’s central bank left its benchmark interest rate unchanged for a second consecutive month as the currency gained and inflation slowed.

The policy rate was maintained at 23 percent, Bank of Uganda Governor Emmanuel Tumusiime-Mutebile told reporters today in the capital, Kampala. The bank boosted the rate by 10 percentage points since it was introduced in July.

Inflation in East Africa’s third-biggest economy slowed for a second month to 27 percent in December after food prices, fueled by drought last year, eased, the statistics office said on Dec. 30. Uganda’s shilling has gained 17 percent against the dollar since the beginning of October, curbing import costs and giving the central bank room to keep borrowing costs on hold.

“The peaking of inflation and the recent strengthening of the shilling shows that monetary policy is quite effective and that Bank of Uganda must maintain a tight stance in order to bring down inflation and stabilize it around its medium-term target of 5 percent,” the governor said.

The central bank reduced the rate at which it lends to commercial banks, known as the bank rate, by 1 percentage point to 28 percent. The rediscount rate, the interest investors can earn if they redeem treasury bills and bonds before maturity, was lowered by the same margin to 27 percent.

Credit demand by the private sector has slowed since the central bank began raising interest rates, gaining 37 percent in October from a year ago, down from 47 percent in September, according to data from the central bank.

“The central bank cannot cut the rate at this level because private sector borrowing is still high,” Alex Aheebwa, a research analyst at African Alliance Uganda Ltd., a trust unit and investment advisory company, said before today’s announcement. “The private sector continues to borrow, some from multiple sources, even at the current high rates.”

The shilling gained to 2,438 against the dollar as of 12:20 p.m. in Kampala from 2,439 before the governor began speaking.

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