Businesses and individuals borrowing from commercial banks will be asked to pay more after Bank of Uganda increased key lending rate to 14.5%
This was resolved in an emergency Monetary Policy committee meeting held today.
Addressing journalists, Bank of Uganda governor, Emmanuel Tumusiime Mutebile said the recent exchange rate depreciation has raised the risk of higher inflation.
BOU has thus raised the Central Bank Rate by 1.5 percentage points to 14.55up from last month’s 13%.
The CBR is usually a signal to commercial banks on how much BoU will be lending to them, but also is used to reign in on inflationary pressures.
Commercial banks have in the last four months been raising their lending rates, something which is likely to slow down the appetite for borrowing.
The Shilling yesterday showed signs of recovery closing at Shs3,246 after it had hit Shs3,607 against the dollar last week.
The weak Shilling has already had adverse effects forcing fuel prices to increase. Sugar prices have also shown signs of volatility in the last two weeks.
The Central Bank had last hiked the CBR in 2011 as it sought to tame runaway inflation, which had hit the 30.5 per cent.
In 2011 commercial banks’ lending rates averaged 30 per cent, a situation that saw a number people defaulting on their payment obligations and banks writing off billions of shillings.