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Interest rates drop on reduced BoU policy rate

The movement of interest rates is largely influenced by the Bank of Uganda policy rate. Photo / File 

What you need to know:

  • The reduction in interest rates also influenced a slight increase in private-sector credit, which November grew by 2.6 percent 

Interest rates edged downwards towards the end of 2024, signaling the impact of a reduction in the Bank of Uganda policy rate.

The reduction, the Ministry of Finance performance of the economy report said, also influenced a slight increase in private sector credit, which November grew by 2.6 percent.

The report notes that the weighted average lending rate for shilling-denominated credit edged downwards to 18.08 percent from 19.43 percent in October 2024, reflecting an improvement in borrowing costs, which saves borrowers from servicing high-interest loans in the short term.

The decline, the Ministry of Finance noted was partly due to the gradual monetary policy easing undertaken by the Central bank as well as strong economic performance over the past few months.

Bank of Uganda has since October relaxed the Central Bank Rate (CBR), maintaining it at 9.75 percent in December 2024.

This had been because the Central Bank had deemed the rate to be sufficient to support price stability and foster sustainable economic growth.

However, the Ministry of Finance indicated that the lending rate for foreign exchange-denominated loans slightly increased to 8.94 percent from 8.63 percent over the same period.

The report further notes that the stock of outstanding private sector credit rose by 2.6 percent from Shs22.27 trillion in October to Shs22.84 trillion in November 2024, following an increase in credit disbursements to the private sector particularly trade, manufacturing and transport and communication sectors.

Of the Shs22.84 trillion, at least Shs6.62 trillion was foreign currency-denominated credit, while Shs16.215 trillion was shilling-denominated.

During the month, the report notes, the value of credit approved for disbursement amounted to Shs2.28 trillion against applications valued at Shs3.2 trillion, representing a 71.3 percent approval rate.

Manufacturing accounted for 22.3 percent of the share of disbursed credit, followed by personal and household loans, which accounted for 21.5 percent. Transport and communication services and trade accounted for 18.6 percent and 16.5 percent, respectively.

The Ministry of Finance also indicated that in December 2024 it had borrowed Shs410.4b through two Treasury bill auctions to refinance maturing debt.