Macroeconomic Variables and Demand for Private – Sector Credit in Uganda
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This study focused on the relationship between macroeconomic aggregates and the demand for private sector credit in Uganda. The study specifically; find out the influence of central bank rate (%) set by the central bank on the demand for private sector credit; assessed the effect of money supply (M2 in billions UGX) on the demand for private sector credit; scrutinized the effect of real exchange rate set by the Bank of Uganda on the demand for private sector credit; evaluated the influence of consumer price index (%) on the demand for private sector credit and it clearly portrayed the impact of lending rate (%) on the demand for private sector credit in Uganda. The study findings showed that private sector credit appears to be increasing over the period 1995 to 2015. Close observations show that the growth was gradual between 1995 and about 2005 after which it increased drastically between the period 2006 and to date. The OLS results showed that only Money Supply, M2, Gross Foreign exchange reserves and GDP at current prices (UGX billion) significantly predict private sector credit whereas Inflation, Exchange Rate (UGX/US$) and Lending rate do not significantly influence changes in the private sector credit. In the same vein, a single rise in the Gross Foreign exchange reserves on the average are expected to reduce the private sector activities and development by approximately UGX .7220273 billion. GDP at current prices (UGX billion) was found to be the single most important factor that determines private sector credit growth was, followed by Money Supply, M2 whereas Gross Foreign exchange reserves led to a decline in the private sector growth in the country, therefore, credit must be availed in a more precise process to offer a competitive advantage to local industries and more importantly offer incentives to the private sector in form of reduced taxes.