Uganda holds rate at 17% as tight monetary stance continues

February 15, 2016 in Business, Finance, Investment, Markets, Policy by Editor

KAMPALA, FEBRUARY 15- The Bank of Uganda has held its rate at 17 percent citing continuing near-term inflation and foreign exchange risks to the economy.

Presenting the monetary policy statement for February this afternoon, Central Bank Governor Emmanuel Tumusiime Mutebile said the bank was taking the path of caution given the “inflation forecast and accompanying risks,” the Bank would  maintain the current monetary policy stance and hold the Central Bank Rate (CBR) unchanged at 17 per cent.

“While the key drivers shaping the outlook largely remain the same in the December 2015 monetary policy report, the forecast for the GDP has been revised marginally to 5.5 per cent in the Financial Year (FY 2016/17 from 5.8 per cent. The marginal reduction reflects the current global economic weakness and volatility in the international financial markets,” he said.

The Uganda Bureau of Statistics rebased the Consumer Price Index (CPI) late January to Financial Year (FY) 2009/10 resulting in slight changes to  inflation as a result of an expanded consumption basket.

The share of food crops in the CPI basket dropped to 10.2 per cent from 13.5 per cent, while the share of core inflation increased to 82.4 per cent from 81.6 per cent.

Mr Mutebile says that since the last meeting of the Monetary Policy Committee, the inflation outlook had improved slightly, mainly due to the exchange and food price developments.

“We now forecast that core inflation will peak at 6-8 per cent in the second quarter of 2016, before flattening out in the second half of 2016, and then gradually falling back to the 5 per cent target during the course of 2017,” he said.

But significant upside risks to this outlook remain, including the future path of the exchange rate, amidst domestic and external uncertainties, especially the possibility of adverse weather after the current El Nino weather phenomenon.

The International Monetary Fund (IMF) projects that Global growth, currently estimated at 3.1 per cent for 2015, will rise to 3.4 per cent in 2016 and 3.6 per cent in 2017.

But the Fund cautions that risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy; a generalized slowdown in emerging market economies, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States.

“If these key challenges are not successfully managed, global growth could be derailed the Fund said in January.