Uganda’s central bank has introduced a new lending window for commercial banks that might encounter short-term liquidity challenges, it said on Tuesday, unveiling another tool to complement its main monetary policy instrument.
The new window, called the ‘Standing Lending Facility,’ will operate alongside the existing so-called lender of last resort or Lombard window, the regulator said in a statement.
It will lend to banks for a period ranging from overnight to seven days, the central bank said, with the option of rolling it over for a maximum of seven days once.
“A haircut of 25% shall be applied to the collateral submitted for access to the facility,” the central bank said, adding that collateral will be government securities at market value.
The facility will help “support monetary policy operations” by keeping interbank interest rates in a narrow band around the central bank’s main policy rate, the central bank said.
The main policy tool, the Central Bank Rate (CBR), is reviewed every two months and was held at 7% at the last meeting of the bank’s monetary policy committee in August.
Lenders who seek funds from the new window too many times will be placed under intensive supervision, the central bank said.