BoU looks to trigger private sector appetite for borrowing

Kampala. To consolidate gains made in recent months, the Bank of Uganda (BoU) has retained the Central Bank Rate (CBR) at 10 per cent.
CBR generally means the rate of interest which a central bank charges on its loans and advances to commercial banks or a rate at which entities such as commercial banks can borrow from the central bank.
According to senior BoU technocrats, since the CBR was set at 10 per cent, slightly more than Shs18 billion has already been advanced to private sector as credit.
To maintain the growth in private sector credit, the BoU monetary policy committee decided to maintain CBR for the month of December 2018 at 10 per cent.
“After setting CBR at 10 per cent, interest on lending hovered at between 19 and 20 per cent,” the executive director research, Adam Mugume, said in an interview after Governor Emmanuel Tumusiime-Mutebile declared the 10 per cent CBR for December 2018.
He continued: “This has been the best lending rate since 1993. So going forward, we expect to see the private sector borrowing more as the high lending rates weaken or at least remain at that rate for the first time in 25 years.”
When contacted yesterday, the executive director, Private Sector Foundation Uganda (PSFU), Mr Gideon Badagawa, commended the central bank for keeping CBR at 10 per cent, considering that not many years ago, it was out of control.
However, he said: “Controlling interests rate is far beyond measures such as CBR. We need to see investment in productive areas by government and more fiscal discipline by the state managers.
“As private sector, we can’t wait for a day we can borrow at 12 per cent or even lower. But for that to happen, government shouldn’t compete with the private sector in borrowing, by doing so they are crowding out private sector and this has impact on production, employment and the growth of the economy.”

Financial sector
In the news conference, the executive director supervision, Dr Tumubweine Twinemanzi, said the financial sector, particularly the banking industry, is resilient and that the players are well capitalised with no liquidity issues. He, however, noted that despite all that, it is difficult to guarantee that nothing wrong will happen in the future.
Just like Dr Mugume, he said the probe by a parliamentary committee investigating the reason behind BoU’s closure of several commercial banks shouldn’t be used to judge the central bank yet.