Central Bank maintains CBR at 12%

The annualised GDP growth of the last three quarters of 2012, which was 5.2 per cent, was much higher than previously projected.”

The Bank of Uganda left its key lending rate unchanged at 12 per cent, signaling itsintention to keep the rate high until inflation is contained.

The decision to maintain the Central Bank Rate (CBR) the rate at which commercial banks borrow money from the Central Bank, is aimed at consolidating the gains made to stabilise the shilling and curb inflation, which has increased to 5.5 per cent, from 4.9 per cent in November and 4.5 per cent in October 2012.

This also reduces the likelihood of a reduction in the cost of loans, since commercial banks use the CBR to set interest rates.

In the larger part of 2012, the central bank executed cautious monetary policy easing by reducing the CBR which was at highest point in November 2011 all through to January 2012 at 23 per cent.
The Central Bank says its cautious monetary policy stance has seen interest rates on the CBR reducing by 11 percentage points, while its impact on the lending rate has led to reduction in lending rate by four percentage points, an indication that the cost of funds is becoming cheap while economic activities are taking shape.

Economic activities picking up
In a monetary policy statement presented on behalf of the Governor Bank of Uganda, Mr Emmanuel Tumusiime-Mutebile, the executive director (supervision), Ms Justine Bagyenda, said: “The available real monetary indicators show that economic activity has started to pick up, with quarterly Gross Domestic Product (GDP) expanding by 2.0 per cent in the first quarter of 2012/13.

The annualised GDP growth of the last three quarters of 2012, which was 5.2 per cent, was much higher than previously projected.”

“Growth in monetary aggregates is also picking up although the private sector credit growth remains subdued partly on account of the higher lending rates on the shilling denominated loans.”

Ms Bagyenda said due to monetary policy easing, growth in the private sector credit is regaining, with monthly average growth of seven per cent in November and eight per cent in December.

The executive director research, Dr Adam Mugume, said Uganda’s economic growth is expected to be stronger in the mid and late 2013, with growth rate projected to be at five per cent.
The executive director of Private Sector Foundation Uganda, Mr Gideon Badagawa, told the Daily Monitor that due to shilling depreciation, rise in inflation, high lending rates and supply constraints, the cost of doing business is likely to be high in the first two quarters of 2013 with slightly elevated inflation levels.

moketch@ug.nationmdia.com