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Citi projects increase in central bank rate

Determines. The CBR determines the cost of money. PHOTO BY RACHEL MABALA

Kampala. With external and domestic risks facing Uganda’s economy, Citi Bank had projected that Bank of Uganda will raise the Central Bank Rate (CBR) to 11 per cent during this year to stabilise the economy as well as curb inflationary pressures.
Some of the risks, according to Citi Bank, include regional border tension, slower global economic growth, and the forthcoming elections due in 2021.

Speaking during a breakfast meeting in Kampala hosted for the bank’s clients at the weekend, Dr David Cowan, the Citi Bank Africa chief economist, said the current forecast is likely to force through a modest rise in the cost of goods and services (inflation) into 2020 back to around 5 per cent, noting that whether Bank of Uganda (BoU) feels this is sufficient to raise the Central Bank Rate (CBR) is not clear given the pre-emptive decision to raise the CBR in late 2018.”
He also noted that the current fiscal outlook, which is characterised by a planned widening of the fiscal deficit could inform the Central Bank’s decision thus concluding: “Our forecasts have BoU raising the CBR to 11 per cent in 2019 compared to its current level of 10 per cent.”

The Central Bank has since 2011 been using the CBR as a monetary to control inflation and the amount of money in circulation.
Movements in the rate have in the past seen a spike in interest rates with the worst being in 2011 when it was increased to 16 per cent thus forcing commercial interest rates to rise to an average of 28 per cent.
Ms Sarah Arapta, the Citi Bank managing director, told Daily Monitor in a separate interview that the economy had picked up, noting it is likely to maintain a good momentum backed by investments in infrastructure, increased agricultural productivity, a stimulatory monetary policy and a growing private sector.
“Sustainability of this growth will determine when we start seeing the cost benefits in the infrastructure,” she said.

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