On February 13th the Central Bank of Uganda (BoU) cut its key policy rate by 5 basis points, to 9%.
For long, commercial bank lending rates have averaged at 21.37 percent, going as high as 23.13 percent in February 2017 and as low as 18.97 percent recorded in October 2017. The Central Bank Rate (CBR) fell drastically by over 20 percent to 9.5 percent from 12 percent recorded at the start of 2017 in a bid to pull down the lending rates. The commercial bank rates have been fluctuating. By the end of November 2017, commercial bank rates stood at 21.42 percent. Contrary to this development, the time deposit rates for customer savings reduced drastically by over 27 percent reflecting effect of CBR. Banks are enjoying low borrowing rates from the central bank while charging heavy lending rates on their clientele, and paying them less for their savings.
Impact on the forecast
The latest cut was in line with our expectations. We expect the policy rate to fall to around 8‑8.5% by the end 2018.