Uganda Central Bank Keeps Key Policy Rate Unchanged for December

Post by: Dr. Amrinder Pal Singh

In its last meeting for 2024, Uganda’s Central Bank decided to keep the Central Bank Rate (CBR) unchanged at 9.75% for December. This means that the rate at which the Central Bank lends money to commercial banks will stay the same. This decision was made because of a strong focus on lowering lending rates for businesses and keeping the exchange rate stable.

Why Did the Central Bank Keep the Rate the Same?

The Central Bank made this decision because of the current global situation. There is some uncertainty in the world economy due to events like Donald Trump’s victory in the US presidential election and the ongoing conflict in Gaza. These events have caused concerns about supply chain disruptions and other economic challenges.

The US dollar has also become stronger, and high interest rates in the United States might cause investors to move their money away from countries like Uganda to places with higher returns. This could affect Uganda’s economy, which is why the Central Bank took a cautious approach in its decision.

How Has the Uganda Shilling Been Performing?

The Uganda shilling has shown signs of weakness recently. In November 2024, the exchange rate was about 3,679 Ugandan shillings for 1 US dollar, compared to 3,668 Ugandan shillings in October. This drop is due to more demand for foreign currencies and some investors leaving the country’s government debt market.

At the same time, interest rates charged by commercial banks in Uganda have gone up slightly. In September 2024, the average lending rate was 18.8%, but by October, it had increased to 19.4%.

How Is Uganda's Economy Doing?

Uganda’s economy has slowed down a little. The growth rate for the first quarter of 2024 was 7.1%, but it dropped to 6.2% by the second quarter. Experts believe that the Ugandan government’s plan to borrow money from the World Bank will help support the country’s budget and provide more credit to local businesses.

However, the success of these plans will depend on how well the government can collect taxes. Dr. Adam Mugume, the Executive Director for Research at the Bank of Uganda (BoU), explained that the government’s ability to raise money through domestic borrowing will depend largely on tax revenue.

The Impact on the Currency and Economy

The decision to keep the CBR unchanged has sent a signal to the foreign currency market. It means that the Ugandan shilling is likely to stay more stable in the short term. Benoni Okwenje, General Manager for Financial Market Operations at Centenary Bank, mentioned that the market is still responding to the signals from the Central Bank about lowering lending rates. Some commercial banks have already started reducing their lending rates, but the full effects will take time.

In addition, the effects of the Central Bank’s policies on economic growth may not be felt immediately. It could take up to 12 months before the changes start to show their impact on local businesses.

What About Inflation?

Despite the challenges, inflation (the rate at which prices rise) in Uganda has remained steady. Inflation stayed at 2.9% in both October and November 2024, according to data from the Uganda Bureau of Statistics. This shows that prices for goods and services are not rising too quickly, which is a good sign for the economy.

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