Assessing the Macroeconomic Determinants of Private Sector Credit in Uganda
Nakimuli, Nandabi Becky
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The main objective of this study was to assess the macroeconomic determinants of private sector credit in Uganda using Bank of Uganda disseminated monthly data on variables such as lending rate, deposit rates, exchange rates, money supply, inflation and the central bank rate in Uganda using OLS method. The specific objectives pertaining this study were to determine the effect of the Central Bank Rate, the effect of money supply, influence of lending and deposit rates, exchange rate, the effect of inflation and money supply on the demand for credit by private borrowers in Uganda. To operationalize these objectives, secondary monthly time series covering the period of June 1998-April 2018 was used. With the aid of an OLS method and Pearson Correlation, co-integration tests, granger-causality test and diagnostic test through STATA program, an analysis was carried to assess the effect of each of the selected variables under study on private sector credit and to determine the long run relationship amongst the variables in the model. The OLS revealed that private sector credit was predicted to increase by shs 118.962 billion when the lending rate go up by one, decrease by shs 0.008 billion when exchange rate go up by one, increase by shs 1.943 billion with an increase in the central bank rate, increase by shs 0.820 billion when money supply rises by one, increase by shs 103.423 billion when the deposit rate increase by one and eventually predicted to decline by shs 1.896993 billion when inflation persists in the economy by one unit. Although two bank-specific and one macroeconomic variable such as money supply, deposit rate and lending rate were found to have a stronger effect on predicting private sector credit, it is very important for Ugandan Government and the concerned bodies like Private Sector Foundation (PSFU) to review its policies on Private Investment and pay more attention to its determinants.