Uganda slashes 100basis points off key lending rate

August 8, 2016 in Business, Finance, Markets, Policy by Editor

KAMPALA, AUGUST 8 – Maintaining a relaxed monetary stance, Uganda’s central banker has for the third time this year slashed a point off its key policy rate, reducing the CBR from 15 to 14 percent citing continuing recovery in the economy and receding inflationary pressure.

The move was largely in line with analysts expectations who are still predicting a further 100 basis points reduction to the CBR at the next sitting of the Monetary Policy Committee in October.

Annual headline and core inflation declined to 5.1 percent and 5.6 percent in July 2016 from 5.9 percent and 6.8 percent a month earlier amidst expectations it would converge towards the BoU’s 5percent target by end of the year.

Central Bank Governor Emmanuel Tumusiime Mutebile explained that

stability of the exchange rate, lower fuel prices and subdued domestic demand had contributed to the gradual dampening of inflationary pressures over the last seven months, backing a relaxed monetary policy stance.

The Bank also sees the economic growth recovering to 5.5percent in fiscal 2016/17 supported by higher spending on public infrastructure and recovery in credit to the private sector.

The reduction, the third this fiscal year after two back to back cuts in

April and June which came on the back of sluggish growth during the first half of the calendar year that was largely blamed on a contraction in uptake of credit by the private sector as lending rates soared to 30 percent.

While credit uptake has since picked, commercial banks lament a spike in the non-performing loans portfolio expected to peak at 9percent for the period to June30.