If you are seeking a loan to carry out agriculture or to purchase land, be prepared to spend more, especially after banks increased charges on loans to these sectors in November. Bank of Uganda's (BoU) monetary policy report for January 2014 shows that land purchase loans are the most expensive, after the interest on them jumped to 27 per cent from 25.6 per cent between October and November. Agriculture loan charges followed closely, the report noted, after their interest rates jumped to 24.4 per cent in November from 21.4 per cent in October. Interest rate increases are usually driven by how risky banks perceive those sectors to be. Other sectors that saw loan charges increase in November include building, construction and real estate, personal and household loans, and community, social and other services. The monetary policy report tracks economic activity in the country. The central bank rate (CBR), the rate at which banks borrow from BoU, remained at 11.5 per cent for January, the second month in a row it has remained unchanged. Adam Mugume, the executive director Research at BoU, said non-performing loans increased because demand had slumped. He was speaking at the release of the report at BoU last week. "Businesses across all sectors were less optimistic in their outlook three months ahead," the BoU report notes. "Competition from low-quality products was the biggest challenge to increased business activity followed by high cost of finance and low demand." Other limiting factors are high cost on inputs, and delays in payments. Governor Emmanuel Tumusiime-Mutebile said last week that private sector loans remained low. "Annual growth in PSC [private sector credit], though positive, has been declining since February 2013 , mainly on account of a rapid decline in annual growth of the foreign currency loans... ," says the report. Net loan extensions in shillings were Shs 42.7bn last November, down from Shs 146.7bn in October 2013 . Stephen Kaboyo, the managing director at Alpha capital, says the public should not read much into the increase in loan charges - as they are likely to be temporary. "Until we observe a consistent trend over a few months, it is only then that we can draw useful conclusions," Kaboyo told The Observer. "Commercial banks have been slow in responding to the policy rate cuts. Perhaps with the business and consumer confidence picking up... we could see a reflection of this on the lending rates." Despite a drop in private sector credit, the central bank maintains that the economy will still grow at 6.2 per cent, up from 5.3 per cent last financial year. Construction of infrastructure projects, like energy plants and roads, is expected to drive this growth. The report notes that the balance of payment deficit - the figure that shows how much money the country is spending on imports than what it earns in exports - slightly improved to $537.8m during the three months to November 2013 , from a $591m deficit in the previous three months. Nonetheless, growth in the first quarter of this fiscal year declined due to low agriculture harvests and limited government expenditure, a life blood for Uganda's private sector. "Growth in agriculture remains subdued due to adverse weather conditions," the report says.
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