UGANDA, Kampala | Real Muloodi News | Credit demand remained subdued in June, even as interest rates fell to below 19 per cent for the first time in many years, according to Bank of Uganda (BoU) data. This isn’t surprising news, given the 42 days of lockdown restrictions imposed on Uganda in early June.
Highlights in the BoU Monetary Policy Report show that during June, lending rates dropped by almost two percentage points to 18.2 per cent, down from 19.6 per cent in May.
The reduction in the Bank of Uganda Central Bank Rate influenced lending rates down for prime borrowers, particularly in the telecom and oil sectors. Since February this year, lending rates have been on a downward trajectory following the easing of the Central Bank Rate.
While interest rates for shilling-denominated loans fell to 18.2 per cent, interest rates for foreign currency-denominated loans increased from 5.3 per cent in May to 6.4 per cent in June.
The reduction in interest rates supported private sector credit growth by 6.8 per cent in the quarter to June. However, this credit growth was much lower than the 9.8 per cent growth registered in the quarter ending in March.
During the quarter to June 2021, loan approvals stood at Shs2.25 trillion, up from Shs2.17 trillion in the quarter to March. Whereas loan applications declined from Shs5.01 trillion to Shs3.78 trillion during the quarter to March, showing low credit demand because of the slow economic recovery.
However, Bank of Uganda said as Covid-19 containment measures take pace, they expect private sector credit to grow, albeit at moderate rates in the medium-to-long term.
BoU says, the yield on government securities for both Treasury Bills and Treasury Bonds for all tenors has declined.
In July 2021, exchange rates remained relatively stable. The exchange rates depreciated by only 0.3 per cent month-on-month compared to June, when the rate rose by 0.3 per cent.
The exchange rates year-on-year appreciated by 4.1 per cent from 5.3 per cent year-on-year in June.
The BoU now projects that economic growth will range between 3.5 to 4% in Financial Year (FY) 2021/22, well below the 6-7% growth rates averaged in the past by the Uganda economy. BoU doubts those kinds of growth rates will be possible again until FY2024/25.
“Economic activity is expected to remain well below the pre-pandemic path for an extended time,” it says.
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