Monetary Policy and Uganda’s Private Investment
Abstract
Monetary policy determines the overall performance of an economy, particularly in developing countries where private investment is among the determinants of growth. Money supply, inflation, and changes in lending rates always influenced how the private sector invested in Uganda. This study aimed to examine how monetary policy influences private investment in Uganda focusing on money supply, interest rates, and inflation as the key determinants. Data for the period 1990 to 2020 were used for the study, which were secondary time series data provided by the Bank of Uganda and World Development Indicators publications. The Autoregressive Distributed Lag (ARDL) model was used to apply its application to both the short-run and long-run effects of monetary policy on private investment. The results showed that in the short run, private investment responded positively to increased money supply and inflation and negatively to higher lending rates. Although monetary policy can stimulate private investment in the short run, its effectiveness wanes in the long run unless carefully managed. This means that expansive policies can stimulate investment in the short run, but such heavy reliance could undermine the sustainability of investment. The study identifies that if Uganda could maintain an effective monetary policy, it is vital to balance encouraging private investment and maintaining macroeconomic stability. Such findings can assist in designing policies fostering sustainable private sector-driven growth.
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References
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