Kampala City Traders Association PRO Issa Sekitto (middle) walks with other traders. They were protesting high interest rates
Falling inflation in Uganda and Kenya is expected to lead to lower borrowing costs in the weeks ahead. Uganda’s central bank cut its key lending rate this week, while in Kenya the market will be watching the outcome of a policy meeting next week.
Ugandan Treasury bill yields are expected to edge lower at an auction next week after the central bank cut its key lending rate in anticipation of a continued decline in inflation.
Last Thursday, the bank cut its Central Bank Rate by 1% to 21%, citing a belief that inflation would fall to single digits by the end of the year. “The rate cut will play a big role in next week’s auction,” said Faisal Bukenya, head of market making at Barclays Bank Uganda.
“We anticipate yields in all tenors to come off.” Traders expect firm demand from local investors as those from offshore search for more attractive yields in other markets such as Kenya.
“I anticipate a bit of interest from offshore, but the bulk will be local,” said Bukenya. “When rates were above 20%, they put in quite big amounts. Their appetite is waning slowly.”
Another trader said although there was still interest from overseas, he expected local banks to be the most active participants.
“Ugandan assets are probably not looking as attractive as they did a couple of months ago when inflation was in the region of 25%,” he said.
The trader said the auction was likely to be oversubscribed, with the 1-year bill receiving the most demand.
Reuters
