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Financial markets await lower lending ratesPublish Date: Jan 02, 2014
Financial markets await lower lending rates
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By Samuel Sanya

Year-on-year core inflation, the main determinant of the benchmark Central Bank Rate (CBR), has declined to 5.7% from 7% at the end of December, raising hopes of a further drop in rates in January.

Core inflation is only 0.7% points off the Bank of Uganda target. The CBR was reduced from 12% to 11.5% in December and bankers are hoping for a second successive reduction in January.

“I think the inflation trend clearly favours additional policy easing next month,” Faisal Bukenya, the head of market making at Barclays Bank, told the media recently.

Average commercial bank lending rates have dropped to 22.6% from 25%, and experts say the continued reduction in the cost of funds in the economy will bring down lending rates to rates below 20%.

Annual headline inflation, the overall inflation measure, declined to 6.7% from 6.8% due to high food supplies to markets in the first two weeks of December.

Prices of vegetables, transportation, milk, meals in restaurants and clothing went up by average 3.38% during the Christmas season.

The average annual inflation rate for 2013 was 5.5% lower than the 14% average last year, a clear indication that the economy is making a steady recovery. Uganda’s economy is projected to grow by 6.5% this financial year up from 5.8% last year.

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