Uganda’s Central Bank settled for a delicate balancing act during its last monetary policy meeting for 2024, keeping the Central Bank Rate (CBR) unchanged for December.

It means the rate will remain at 9.75 percent for December 2024, buoyed by a strong policy bias towards lower lending rates and a stable exchange rate.

Fresh economic uncertainty tied to Donald Trump’s victory in the US presidential election, raging fears of protracted war in Gaza and attendant supply chain disruptions may have influenced the cautious monetary policy decisions.

A deep preference for tight monetary policy, a strong US dollar and high interest rates within the incoming Trump administration is likely to trigger massive capital flight from developing economies to advanced ones, among investors seeking to exploit rising interest rates offered by the latter.

The Uganda shilling averaged Ush3,679 against the US dollar in November 2024 compared to Ush3,668 posted in October 2024; a sign of weakness in the local shilling attributed to spikes in demand for foreign currency among traders and exits reported among offshore investors active in the government debt market.

Average lending rates quoted by commercial banks slightly rose from 18.8 percent in September 2024 to 19.4 percent in October 2024 according to latest Bank of Uganda (BoU) data.

Quarterly economic growth dropped from 7.1 percent for the quarter that ended March 2024 to 6.2 percent for the quarter that ended June 2024.

Experts think Uganda’s plan to borrow from the World Bank to support the budget may help substitute part of the domestic borrowing, directly providing credit avenues for domestic private businesses.“But the amount of money government will eventually mobilise from the domestic market will be largely determined by tax revenue performance patterns,” said Dr Adam Mugume, the BoU’s Executive Director for Research.

The latest policy rate announcement has sent a neutral signal to the foreign currency market, meaning the local shilling will stabilise more in the short term, according to Benoni Okwenje, the general manager for Financial Market Operations at Centenary Bank Limited.“The market is yet to respond fully to policy easing signals in relation to lending rates. I know of two commercial banks that have decided to cut their prime lending rates but effective this month.“Adjusting prime lending rates involves several factors and consultations within banks’ Asset Allocation Committees and boards of directors and this process may take up to 40 days on average to complete.”However, the impact of recent policy actions on economic growth might take up to 12 months before it is felt within local businesses, Okwenje added.

In contrast, headline inflation remained stable at 2.9 percent in October and November 2024 respectively, according to data compiled by Uganda Bureau of Statistics.

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