VOX  CEPR Policy Portal

Existing studies suggest that the effects of monetary policy in developing countries on credit and the real economy are weak. This column challenges this view using rich loan-level credit register data from Uganda. It shows that monetary policy tightening significantly reduces credit supply – especially for banks with greater leverage and sovereign debt exposure – and identifies spillovers on inflation and economic activity. The effects are larger in more financially developed areas, highlighting the importance of financial development for policy effectiveness.