Uganda holds policy rate at 17pc on positive outlook

December 16, 2015 in Business, Finance, Markets, Policy by Editor

CBR held at 17 percent

Band on the CBR maintained at +/3 percentage points

Margin on the re-discount rate kept at 4 percentage points on the CBR

Re-discount rate and bank rate maintained at 21 per cent and 22 per cent respectively

 

KAMPALA DECEMBER 16 -The Bank of Uganda has held its key lending rate at 17 percent as inflation is seen to level off after spikes in November and minimal near term risk to growth prospects for fiscal 2015-16.

Announcing its policy rate for the next two months today central bank governor Emmanuel Tumusiime-Mutebile said despite lingering risk of external shocks, the economy remains largely on track meet the projected economic growth of 5 percent for the financial year.

While annual inflation continued to rise, with headline inflation reaching 9.1 percent in November from 8.8 percent in October 2015, and core inflation at 6.7 percent from 6.3 percent, the impact of recent currency depreciation had been dampened by much lower inflation in the services sector.

“The increase in inflation was driven by higher food crop prices, an increase in power, and a weaker local unit but monthly core inflation has stabilised in the past three months, after accelerating earlier in the year.

“The upward impact of the exchange rate depreciation on monthly core inflation has been partly offset by much lower services inflation. This indicates that the tightening of monetary policy since April 2015 has begun to curb inflationary pressures,” Mutebile said adding that the projection for real economic growth for the 2015/16 financial year remains 5 percent.

“However, there are downside risks to the projected growth, including those emanating from the external economic environment, which remains challenging for the economy and could deteriorate further over the next 12 months,” Mutebile cautioned citing slower growth in major emerging market economies; further decline in global commodity prices; as well as reduced access to external finance for developing countries due to

heightened perceptions of risk, and possible monetary

policy tightening in the US as key risk factors.

As a result, Uganda’s balance of payments in the short to medium term will remain vulnerable to external shocks although the bank predicts that annual core inflation will peak at around 10 percent in the third quarter of 2016, before gradually declining towards the medium term target of 5 percent.