- What are Key Rates?
- What does a reduction in key rate mean then?
- What influenced the reduction of the key rate in Uganda?
- Comments and reactions
- Final Thoughts
For the very first time in history, the Bank of Uganda reduced its key rate, cutting it from 10.25 per cent to 10 per cent.
What are Key Rates?
They’re benchmark interest rates implemented by the central banks of different countries to shape the cost of borrowing in an economy.
Think of it as playing a game with your friends and setting points to be won for each round. It just sets out the dynamic of the game entirely. That way, you can tell who’s the winner and who isn’t. That’s exactly how the key rates dictate how much a bank should charge for their loans.
What does a reduction in key rate mean then?
In simple terms, it means the central banks have decided to make borrowing money cheaper.
A reduction in interest rates counters the fall of prices or a likely deflationary situation. It also rejuvenates the economy and helps to boost exports.
What influenced the reduction of the key rate in Uganda?
This is largely attributed to the improved economic state of the country, distinctively the stability of the Ugandan shilling as well as the moderating inflation.
The yearly headline inflation advanced moderately to 4.0 percent in July 2024 from 3.9 percent in June, and this was propelled by services inflation which rose to 6.5% in July 2024, held up by the increment in passenger transport, accommodation, recreation, sports, and culture services’ inflation.
The Bank of Uganda is also anticipating a decrease in inflation, below the 5 percent target in the financial year 2024/25 in respect to stable demand conditions, lower imported inflation, and exchange rate stability.
Comments and reactions
Deputy Governor of the Central Bank of Uganda, Michael Atingi-Ego when addressing the inflation control said,
“We expect inflation to continue rising moderately in the next four months due to seasonal factors but stabilize around the target of 5% by the first quarter of 2025”.
He went further to say, “Going forward, BOU will adjust its policy stance informed by incoming economic data, with a view to maintaining a low and stable inflation environment, which is necessary for sustainable economic growth.”
Final Thoughts
This resolution means that banks will proffer lower credit rates, which would be a massive relief to borrowers.
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