Interest rates on short-term lending between banks increase

Bank of Uganda says new commercial banks will be required to pay Shs50m for an operating license while existing ones will have to pay 0.05 percent of their gross annual revenue while renewing their licenses. PHOTO | EDGAR R BATTE

What you need to know:

The Central Bank also increased cash reserve requirement to 10 percent effective 23 June as part of the monetary policy stances that seek to ensure that inflation eases back to within target in the medium-term

Interest rates on short term borrowing between banks has increased to 7.3 percent, according to Bank of Uganda.

This comes after Bank of Uganda early this week increased the Central Bank Rate to 8.5 percent, which is expected to impact interest rates.

Early this week, the Central Bank noted that the seven-day interbank interest rate had increased to 7.3 percent in the quarter ended June 2022 from 6.8 percent while the overnight rate had increased to 7.1 percent from 6.5 percent in the quarter to March.

The Central Bank also increased cash reserve requirement to 10 percent effective 23 June as part of the monetary policy stances that seek to ensure that inflation eases back to within target in the medium-term.

Primary market yields also increased with the notable increases observed in the two-year bond (from 9.9 percent to 11.8 percent) and 20-year bond (from 16 percent to 17.4 percent) while secondary market yields for all tenors also increased across the board.

However, interest rates on shilling-dominated loans declined to 18.3 percent in May 2022 from 18.8 percent in April 2022 while foreign currency-denominated rates dropped to 6 percent in quarter to May from 6.2 percent in the quarter to February.

Bank of Uganda also said during the period, the shilling lending rates declined in manufacturing, transport and communication, and building, mortgages, construction and real estate but the increase in the CBR is expected to have a lag-on effect on the lending rates in the coming months.

The Central Bank also noted that at 9.5 percent, private sector growth had remained low, falling way below the historical average.

During the period, year-on-year growth in private sector credit averaged 9.5 percent in the quarter to May, a slowdown from the 9.9 percent in the quarter to February.

Credit growth was strongest among personal and household, and building and mortgages.

The Central Bank also projected a further decline in private sector credit due to tightening monetary conditions.

Welcome!

You're all set to enjoy unlimited Prime content.