Excess Reserves in Uganda’s Banking System and the Effectiveness of Monetary Policy

Abstract

The objective of this policy brief is to establish how high excess reserves in the banking system affect the effectiveness of monetary policy formulation. This has implications on the Bank of Uganda’s role in implementing policies and advocating for complimentary policies aimed at encouraging banks to reduce their holdings of excess reserves. It is important to address this problem of excess reserves because Uganda is on the verge of receiving heavy foreign exchange inflows from the oil sector which could significantly scale up the amounts and complicate monetary policy.