Money supply to ease this week - BoU
Posted Tuesday, January 29 2013 at 02:00
Money market. Although supply in the money market has slowed, there are signals of recovery.
The tight liquidity condition has begun to ease three weeks after the market experienced a slowdown in money supply.
This was largely reflective of seasonal patterns coupled with low government expenditure and remittances of VAT by commercial banks to the central bank.
Dr Adam Mugume, the Bank of Uganda executive director research told Prosper last week that the first weeks of January are usually characterized by remittance of corporate taxes for the previous year and low consumption patterns after the festive season.
“Every January, banks remit VAT to the central bank. This coupled with low government activity, explain the current tightness,” he said.
However, he added the third week of January had experienced some changes with the interbank rate standing at 9.4 per cent.
There had been speculations that the tightness had been caused by major market players who were cutting long term dollar positions to address the shilling scarcity.
However, Dr Mugume said government’s delayed disbursement of funds for districts and other agencies for Q3 had not been effected.
Dr Mugume dismissed fears that the cash reserves had declined to Shs106 billion in January and down from Shs150 billion in December.
“The cash reserve requirement is 8 per cent of the deposits and I don’t recall any bank missing this requirement in the recent past.”
The tight liquidity condition in the market during the first two weeks of January forced the central bank to inject Shs150 billion.
Mr Fabian Kasi, the Centenary Bank managing director told Prosper that there are many reasons to the tight liquidity condition.
He said the factors to explain the condition largely falls within the prevailing government fiscal policy and the central bank’s monetary policy which is designed for low fiscal expenditure and high central bank rates.
“We are trying to get back to where we were before. However, risks keep coming from both global and the domestic scene. On the global scene he said inflation is expected to rise due high food prices and high petroleum prices on the international market.”
He adds that domestic supplies continue to show slow recovery considering that many businesses are tying their capital in the festive season stocks.