There is a conventional view that monetary policy in developing countries is ineffective, largely because of weak institutions, underdeveloped financial markets, and uncompetitive banking systems. Recent work on Uganda challenges this view by putting forward a novel set of findings that are based, for the first time, on microdata from a credit register. A monetary policy tightening strongly reduces credit supply, increasing loan application rejections, reducing granted loan volume, and raising loan rates—especially for banks with more leverage and sovereign debt exposure. The analysis also documents spillovers on inflation and economic activity, especially in more financially-developed areas.
