Uganda Central Bank cuts key lending rate to 11%

The Central Bank of Uganda has announced a reduction in its benchmark lending rate from 11.5 percent to 11 percent, marking the seventh consecutive cut since last April. This decision comes as policymakers aim to lower borrowing costs from a peak of 17 percent following a surge in inflation. Furthermore, insurance premiums in the country have seen an 18 percent increase due to a rise in fraud cases, with detected fraud estimated at around $10,000 and total fraud in the sector reaching $500,000. Catherine Namu-Joozi, the Head of Customer Relations/Compliance and Risk at Crested Capital, shed light on the implications of the central bank's rate cut. Namu-Joozi explained that the reduction in the benchmark rate is intended to stimulate private sector credit growth by making borrowing more accessible and affordable. This move aligns with the central bank's objective of maintaining inflation below 5 percent and fostering economic expansion. The central bank's decision to lower the lending rate is expected to have a positive impact on the economy by facilitating increased borrowing and investment. As borrowing costs decrease, businesses in Uganda, particularly in sectors like infrastructure and agriculture, are anticipated to leverage bank credit for long-term and medium-term growth opportunities. With the reduction in the central bank rate and banks aligning their lending rates accordingly, the private sector is poised to benefit from improved access to financing. Uganda's private sector credit growth has witnessed fluctuations, with limited growth recorded last year due to high borrowing costs. However, recent easing of prime lending rates by commercial banks has contributed to a more favorable credit environment. The landscape is showing signs of improvement, with banks expressing optimism about credit growth prospects for the current year. Notably, sectors such as infrastructure, energy, and construction are driving growth, supported by government projects and increased financing availability. Looking ahead, the outlook for Uganda's private sector credit market appears promising as the central bank's rate cut aims to bolster economic growth and enhance borrowing opportunities. By addressing inflation concerns and stimulating domestic demand, the lending rate reduction is poised to fuel a resurgence in private sector credit uptake and investment across key sectors.