Businessmen and bankers optimistic on economy
Nov 04, 2011
A survey by the New Vision of banks, investment advisors and business opinion leaders shows that most are optimistic of the country’s economic prospects in the immediate future.
By Samuel Sanya
A survey by the New Vision of banks, investment advisors and business opinion leaders shows that most are optimistic of the country’s economic prospects in the immediate future.
The Bank of Uganda increased its benchmark Central Bank Rate to 23% in November from 20% in addition to the rediscount and bank rates. Previous increments have seen commercial lending rates increase up to 28.5% from 18% in June.
The Central Bank initiated inflation-targeting in July this year where the price of money is monitored as opposed to the quantity. This was due to developments in the financial sector like mobile money that made it harder to monitor money in circulation.
South Africa, Kenya, and Ghana are the other African countries following the inflation-targeting framework.
“We are getting mixed reactions from the borrowers since the changes affect both new and existing customers. Due to the current market changes, we have been forced to increase our lending rates to 26% from 23%,” said AR Kalan, the managing director of Crane Bank.
He added that the bank had to raise fixed deposit interest rates by 3% to 17% to match the increments in the loan borrowing rates.
Wilbrod Owor, the head of consumer banking at DFCU bank said they are increasing their prime lending rate for shilling denominated loans to 27% effective November 14.
“We are following through with the current Central Bank monetary policy tightening. Rates on dollar loans will remain unchanged” he said.
Lamin Manjang, the Standard Chartered Bank boss, pointed out that the Central Bank monetary policy tightening was the right thing to do, but the bank is still studying the likely effect of an increase in rates on its business.
Charles Ongwea, the Barclays Bank managing director, said the bank is studying the market before a decision to revise the banks’ lending rates is made. “The increase in the Central Bank does not mean we are going to immediately raise our rates,” he said.
Muralidhar Anantapur, the Imperial Bank managing director, was more optimistic saying that the recent shilling appreciation is likely to lead to lower inflation and lower lending rates.
“If the Central Bank raises the interest on treasury bills, it will have a cascading effect on the loan and fixed deposit interest rates,” he explained.
Martin Muhwezi, the investor’s club boss noted that only 10% of the Ugandan population is banked.
This will delay the tight monetary policy from curbing inflation.
“The Central Bank needs to initiate measures aimed at increasing financial literacy and enabling the illiterate to bank. There are large amounts of money outside the bank with rich businessmen in Kikuubo,” he pointed out.
Muhwezi added that the high interest rates are likely to spur inflation in the short term through higher costs of production and higher prices for consumers.
Patrick Mutimba, the director for investments at Makerere University says the Central Bank is taking the right measures by increasing lending rates. However, there is a risk of high prices becoming a new normal with core inflation rising above headline.
“Core inflation has risen to 30.8% higher than headline inflation at 30.5% an indication that structural problems, such as electricity shortages, instead of food are the issue now. Private sector borrowing needs to be directed to production and not consumption,” he noted.
Robert Baldwin, the Crested Stocks and Securities chief said the increased interest rates are likely to cause an investment shift towards Treasury bills and bonds from equity and shares.
“Banks are likely to reduce lending activities to focus on the Treasury bill issues whose interest has increased to over 23% per annum,” he pointed out.
Mubarak Ntare, the Kampala trader’s deputy publicist argued that the restoration of peace in Libya, coupled with Central Bank action is improving the dollar rate and economic prospects.
“The shilling appreciation has hurt traders who bought the dollar expensively and those holding dollars are hesitant to sell at lower rates. We have already seen fuel prices drop by sh30 since peace returned to Libya this should continue,” he said.