October 22, 2017

Bank of Uganda cuts base rate to 9.5% from 10%

October 4—Bank of Uganda (BoU) has reduced the Central Bank Rate (CBR) to 9.5 per cent from the previous 10%. The CBR is the benchmark on which commercial banks determine their lending rates.

Mutebile
Mutebile said reducing the CBR is one way to maintain momentum in the economy by reducing the cost of borrowing.

“The country’s economic activities are slowly gaining momentum. A cautious easing of monetary policy is warranted to boost private sector credit growth and strengthening the economic growth momentum,” Prof. Emmanuel Tumusiime Mutebile, the BoU Governor said during a news conference.

Core Inflation, on which BoU partially bases its decision to apply changes to the CBR, has remained within the parameters of monetary policy. The CBR has been falling since the beginning of the year.

“Given that annual core inflation is forecast to remain around the medium-term target of 5 percent and economic activity is slowly gaining momentum, a cautious easing of monetary policy is warranted to boost private sector credit growth and to strengthen the economic growth momentum,” Mutebile said.

He said, “The BoU has therefore decided to reduce the Central Bank Rate (CBR) by 0.5 percentage points to 9.5 percent. The band on the CBR will be maintained at +/-3 percentage points and the margin on the rediscount rate at 4 percentage points on the CBR. Consequently, the rediscount rate and the bank rate have been reduced to 13.5 percent and 14.5 percent, respectively.”

BoU wants to restore confidence in the private sector credit by lowering the cost of borrowing. He said according to the latest quarterly GDP data released at the end of September 2017 by Uganda  Bureau of Statistics, growth recovered in the second half of 2016/17.

“Quarterly growth rates of only 0.6 percent and 1.1 percent were recorded in the first two quarters of 2016/17, mainly because of bad weather that affected the agricultural sector. But growth rates accelerated to 1.8 percent and 1.9 percent respectively in the third and fourth quarters of the financial year,” he said.

He said the upside risks to inflation remain muted, with the exception of the possibility of higher food prices due to crop pests that are affecting agricultural sector and severe rains in some parts of the country. In addition, the forecasts are based on the assumption that the exchange rate will remain around its current level. A stronger exchange rate depreciation, however, would increase the risk of higher inflation.

However, Mutebile said the growth in private sector credit remains sluggish and this may negatively affect the country, to achieve its economic growth projections which now stand at between 5% and 5.5%  for this financial year 2017/2018.

The slow in the economic growth according to the governor is attributed to the poor performance of the agriculture sector which is the major source of income to about 75% of Ugandan.

Commenting on the economic outlook for the next quarters the Governor promised that the outlook looks positive, because of the supported accommodative monetary policy, improvement in public investment  and improvement in the global economy

 

 

 

 

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