BoU maintains CBR at 12%

Kampala- The Bank of Uganda yesterday stayed its policy rate at 12 per cent, citing stability in the economy with increased investments.
The BoU maintained the rate at 12 per cent because it anticipates that the inflation rate will fall back to its policy target of 5 per cent over the medium term.

Presenting the monetary policy statement for October, the Governor of Bank of Uganda, Mr Emmanuel Tumusiime Mutebile, said the increase in food prices is temporary and should start to abate by the end of 2013 or beginning of 2014.
“This means that while headline inflation is likely to edge up in the short term, it should start to fall back in the first half of 2014,” he said.

Mr Mutebile explained that the annual core inflation which the Central Bank uses for its policy rate is forecast to be in the range of 7 to 8 per cent over the next 12 months, before gradually declining to the BoU target of 5 per cent in the subsequent month.

Mr Mutebile said there are upward risks to the inflation forecast, which could arise from stronger than anticipated domestic demand in the current fiscal year or weaker balance of payments.

Uganda Bureau of Statistics recently revised Uganda economic growth for the fiscal year 2012/2013 to 5 per cent from 5.1 per cent it had calculated it at the time of budget reading. In relation to this, Mr Mutebile said as such, the negative output gap-that slack in the economy caused by below trend economic growth over the last two years has diminished.

“Monthly economic indicators of economic activity suggest that the buoyancy of economic growth was maintained in the first two months of the current fiscal year. In addition, growth in commercial bank lending to the private sector is starting to recover,” he said.

BoU statistics indicate that the annual growth in the credit stood at 9.1 per cent in August 2013, compared to 6.4 per cent in June 2013.

Mr Mutebile said given these indicators of stronger economic activity, the 6.0 per cent economic growth projection for 2013/14 can be achieved due to strong growth in the services sector and pick up in government investment in the infrastructure development.

The executive director of research at Bank of Uganda, Dr Adam Mugume, said high economic growth is going to be achieved because the consumption expenditure in Uganda’s economy has picked up.
“Consumption expenditure constitutes 80 per cent of the GDP, growth in personal loans is 6.7 per cent which is key component of consumption expenditure is a good of high strong growth,” he said.

The managing director of Alpha Capital, Mr Stephen Kaboyo, said: “Tightening policy further may not be the best tool at the moment considering the prevailing domestic conditions. However, inflation developments pose the biggest risk to future course of monetary policy,” he said.

THE CBR TRENDS

The movement in rates Month CBR (%)
January 12
February 12
March 12
April 12
May 12
June 11
July 11
August 11
September 12
October 12

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