In a bid to revamp the private sector credit growth, Bank of Uganda (BoU) has taken another big step by reducing the Central Bank Rate (CBR) from 9.5 per cent to 9 percent.
This is the lowest CBR [policy] rate that BoU has decided on since it implemented its current monetary policy on July 4, 2011 that targets stabilisation of the market using short term interest rates.
Mr Emmanuel Tumusiime Mutebile, the central bank governor while presenting the monetary policy statement for February 2018, said the move is aimed at further boosting the private sector credit growth and to strengthen economic momentum.
“Given the objective of keeping inflation close to the target and the estimated spare capacity in the economy, a cautious easing of monetary policy is warranted to further boost private sector credit growth and to strengthen the economic growth momentum,” he said.
The governor said the pace of economic activity strengthened in 2017. According to Bank of Uganda’s Composite Index of Economic Activity (CIEA), the high frequency indicator of real economic activity, economic growth for 2017 is projected to be in the range of 5.0-6.0 percent compared to 2.5 percent in 2016.
In addition, there are indications of a revival in private investment activity as reflected by the recovery of Foreign Direct Investment, which grew by 18.5 percent in 2017 compared to a decline of 30.5 per cent in 2016; improving shilling credit extension by 10.8 percent in December 2017 compared to 7.9 percent in December 2016, and an increase of imports of raw materials and capital goods, which grew by 17.4 percent in 2017 compared to a decline of 21.1 percent in 2016.
The governor said these developments, coupled with an improving global economic outlook, could strengthen domestic economic activity.
The inflation data released by the Uganda Bureau of Statistics (UBOS) indicates that inflation remains subdued. Annual headline and core inflation declined from 3.0 percent to 2.6 per cent in January 2018.
The decline in inflation is partly attributable to low food prices, as annual food inflation declined to 2.7 per cent in January 2018 from 3.5 percent in December 2017. For Electricity, Fuels and Utilities (EFU), the annual inflation rate also declined to 9.8 percent from 12.5 percent in December 2017.