Macroeconomic factors affecting the investment rate in bank of Uganda

Abstract

The study investigated affecting the investment rate in central bank of Uganda. The study was guided by three objectives which were: To find out if interest rates affect investment rate in the Bank of Uganda, to examine whether inflation rate affect investment rate in Bank of Uganda and lastly to assess how economic growth rate (change in demand) affect the investment rate. The methodology involved the use of ex-post facto research design. This is because, the researcher does not aim to control any of the variables under investigation and our pre-disposition is to observe occurrence over a period of time (1999-2018). Another justification for the research design is the desire of the researcher to use secondary data by mainly using the reports generated by Bank of Uganda. The findings revealed that the current interest rates affect the investment activities. At the same time, current interest rates also affect the scale of investment in the future by adjusting the savings. If the level of interest rate rises, the level of investment falls because the cost of acquiring funds becomes expensive and when the level of interest drops, the level of investment rises as the cost of acquiring funds for investment purposes is reduced. Also it was observed that when savings increases the level of investment increases because more funds will be available in the hands of investors to fund capital projects in the economy. The findings further revealed that economic growth has got an influence on the level of saving within the country .An increase in Long run aggregate supply which is essential for long-term economic growth .further can increase economic growth without inflation and thus if investment leads to a significant increase in productivity then the level of economic growth goes up. Inflation rate was found to have a significant impact of the rate of investment according to bank of Uganda reports, where by a positive relationship was reflected between inflation rate and investment rate’ The study recommended the bank of Uganda should ensure that interest rate is not too high in order not to discourage borrowing and not too low. Very low interest rate encourage borrowing but the rewards or returns from the money lent are also low which reduces investments by Bank of Uganda.