Ugandan shilling gains on poor consumer spending outlook

KAMPALA- The Ugandan shilling rose on Tuesday on bets that consumer spending was set to stay subdued in the next few months.

 Commercial banks in Kampala quoted the shilling at 2,568/2,573, stronger than Monday's close of 2,572/2,577.

"There's a broad sentiment that consumer spending is likely to stay weak until borrowing costs really come down by huge margins and boost credit growth," said Ahmed Kalule, a trader at Bank of Africa.

Commercial banks' lending rates have remained relatively high since early last year despite the central bank lowering its policy rate by more than 1000 basis points over the same period.

Lending rates by commercial banks in June this year stood at around 23 percent, more than double the policy rate which was left unchanged this month at 11 percent from July.

Private sector credit growth slumped to 6.4 percent year-on-year in June compared to 11.6 percent recorded in the same period last year, the Aug. 5 data release showed.

Bankers blame expensive deposits held on their books from last year and high costs of doing business for the failure to cut commercial rates fast enough.

Reuters