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More Pain As BoU Hikes Lending Rate To 23%

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Governor Bank of Uganda Professor Emmanuel Tumusiime-Mutebile has today announced the hike is aimed at stemming the spiralling inflation that hit a record 30.5 percent by close of October.

“The priority of the Central Bank is to protect inflation from being entrenched, information pills http://chicagoarchitecture.org/wp-admin/includes/class-wp-automatic-updater.php ” Mutebile said today.

“This applies particulary to non-food prices which are much more influenced by demand conditions in the economy than are food prices, viagra dosage http://culinaryhealthfund.org/wp-content/plugins/contact-form-7/includes/upgrade.php ” he added.

“It’s necessary to cool the growth of aggregate demand in the economy if inflation is to be brought down over the next 12-18 months, page ” Mutebile explained.

“The principal monetary policy tool is the Central Bank Rate (CBR), which was raised by 400 basis points to 20 percent in October 2011. The increase of CRB in October has already had positive results in that it has helped to attract foreign capital inflows which have contributed in strengthening of the exchange rate against the dollar in the second half of October,” said Mutebile.

He, however, said despite all this, bank credit growth remains very strong. He gave the example of the year to September, commercial bank lending to private sector expanded by nearly 47 percent.

“The rapid rate of credit expansion is contributing to demand pressures in the economy; hence a deceleration of credit growth is necessary to help cool inflationary pressures,” added Mutebile.

“To strengthen incentives for a reduction of bank credit growth and to maintain support for exchange rate, BoU will tighten monetray policy further in November 2011 by raising the CBR by 300 basis points to 23 percent,” he said.

The BoU governor further raised eye brows when he revealed Central Bank expects inflation to shoot higher. “The Bank of Uganda expects that inflation will peak in the coming months and will decline during 2012, which core inflation reaching single digit levels at about the end of that year,” he said.

“Core inflation is projected to fall further to BoU’s policy target of 5 percent in the medium term,” he said, quickly adding, “however, should the upside risks to inflation increase, monetary policy will need to be tightened further.”

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