Tamper with Central Bank independence at your peril – Mutebile

September 17, 2016 in Business, Finance, Financial Services, Investment, Policy by Editor

Kampala, September 16– Central Banks need their independence if they are to effectively fulfill their mandate of superintending over macroeconomic stability Bank of Uganda Governor Emmanuel Tumusiime Mutebile told legislators today.

Addressing a sensitisation workshop organized by the central bank for members of parliament Mutebile said without independence, the Bank would not be able to apply painful but necessary monetary policy tools such as raising interest rates to control inflationary pressures.

“A central bank which is not independent would be forced to lower interest rates to suit the interest of the borrowers because raised interest rates are never popular. But the Bank would then not be able to control inflation and yet it is a bad indicator for the economy,” Tumusiime said.

While conceding that high interest rates were not good for businesses, maintaining high rates was a necessary short-term measure to contain inflationary pressures because they discourage spending and encourage saving which is essential for sustainable growth. It is through such measures he said that the Bank has been able to achieve its target of maintaining inflation at 5 percent or less over the last three years.

“When inflation is under control, the economy becomes more attractive to investors. This boosts growth and expands the tax base, creates employment opportunities which also reduces poverty,” said Dr. Adam Mugume the Executive Director for Research at the Bank of Uganda.

Mugume defended the current lending rates saying they were not too high to require policy interventions as has been proposed by sections of civil society and the business community.