Uganda’s Central Bank hikes key lending rate to 10%

Uganda's Central Bank recently made the decision to maintain its key lending rate at 10 percent following a special Monetary Policy Committee Meeting. The move comes amidst a challenging economic landscape in the country, with various factors contributing to the decision-making process. Wilson Manishimwe, a Policy Analyst at Corporate Image Limited, shed light on some of the issues affecting Uganda's economy in a recent interview with CNBC Africa. One of the key factors influencing the decision to maintain the lending rate was the depreciation of the Ugandan shilling, which has been exacerbated by external market forces. Manishimwe highlighted the impact of the World Bank's decision to halt new funding for Uganda, as well as the closure of a significant fund, which has led to a decrease in dollar inflows and put pressure on the local currency. Additionally, the poor performance of the export sector has contributed to the challenges faced by the economy. In response to rising inflation and currency depreciation, the Central Bank opted to keep the lending rate steady, aiming to stabilize prices and prevent further economic instability. While inflation currently stands at 3.4 percent, the Central Bank is wary of potential spillover effects that could impact the cost of goods and services for Ugandan consumers. By maintaining the lending rate at 10 percent, the Central Bank seeks to strike a balance between controlling inflation and supporting economic growth. The decision is also expected to have repercussions on the private sector and investment landscape in Uganda. The increase in the central bank rate could lead to higher interest rates for loans, making financing less accessible for businesses. This, in turn, may dampen investment activities and hinder economic expansion. While a rate hike may attract some global investors looking for higher returns, the overall affordability of loans could pose a challenge for local businesses. Despite the prevailing risks to the inflation outlook, Manishimwe believes that the Central Bank is unlikely to implement further rate hikes in the near future. Drawing on past precedents, where the lending rate was maintained at 10 percent even during periods of high inflation, he anticipates a period of stability in monetary policy. As Uganda navigates economic headwinds, the Central Bank's decision to hold the key lending rate steady reflects a cautious approach to balancing inflation and growth objectives.