Uganda’s Central Bank is holding steady with its Central Bank Rate (CBR) at 9.75% for December 2024. This careful decision reflects an ongoing effort to stabilise the currency and create conditions for lower borrowing costs amid a challenging economic climate at home and abroad.
The Bank of Uganda (BoU) is navigating an unpredictable global economy. Influencing factors include Donald Trump’s recent win in the United States presidential election and the geopolitical crises in Gaza and the wider Middle East region, which have disrupted global trade flows.
These developments have bolstered the American dollar, raised interest rates in advanced economies, and prompted investors to shift funds out of developing markets like Uganda to seek better returns elsewhere.
The Uganda shilling showed signs of strain, averaging Ush3,679 to the dollar in November 2024, a slight drop from Ush3,668 in October. The depreciation stems from heightened demand for foreign currency among traders and reduced participation from offshore investors in Uganda’s debt market.
Lending rates have also shifted slightly, with commercial banks increasing the average rate from 18.8% in September to 19.4% in October. Although these adjustments indicate cautious market behaviour, their full impact remains to be seen. Some banks have begun lowering their prime lending rates, though these changes take time to finalise due to internal processes.
“Uganda’s economic growth has slowed, with the quarterly growth rate declining from 7.1% in the first quarter of 2024 to 6.2% in the second quarter. However, there’s optimism as the government plans to borrow from the World Bank, potentially reducing domestic borrowing needs. This could free up funds for private businesses and invigorate economic activity. The extent of this relief will depend on tax revenue performance,” noted Dr. Adam Mugume, Executive Director for Research at BoU.
Inflation has remained stable at 2.9% for October and November 2024, reflecting price stability despite mounting challenges. This steadiness provides reassurance amidst global economic uncertainty.
The Bank of Uganda’s decision is expected to foster short-term stability for the Uganda shilling in foreign exchange markets. However, the broader effects on lending, credit accessibility, and economic momentum are likely to unfold over the next 12 months.
Benoni Okwenje, a financial market leader at Centenary Bank, emphasised that the impact of monetary policy on lending rates and credit uptake is often gradual. Even so, the BoU’s focus on maintaining macroeconomic balance offers a solid foundation for Uganda’s resilience.
As the year closes, Uganda’s Central Bank remains committed to balancing growth with financial stability, paving the way for sustainable progress in 2025. This measured approach underscores the importance of stability in navigating an increasingly complex economic landscape.