BOU Cuts CBR Further to 11%, Food Inflation on Upward Trend

BoU Governor, Emmanuel Tumusiime Mutebile

The Central Bank has announced a reduction in its signaling rate (CBR) by 0.5 percentage points down to 11% for the months of April and May, prescription amid a slug in the economy.

The bank has been easing its monetary policy consecutively throughout 2016 bringing the CBR down from 17% in an effort to stimulate growth by increasing private sector credit.

This comes at a time when Uganda’s GDP growth numbers have been revised downwards from the initial projection of 5% to 4.5% majorly driven by the long severe drought and global economic shocks.

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While releasing the Bank of Uganda monetary policy statement for the months of April and May to the press on Wednesday, Governor Tumusiime Mutebile said annual headline and core inflation have both declined from 6.7% and 5.7% to 6.4% and 4.8% respectively in March. He attributed this to further stability in the exchange rate which subdued domestic demand.

However, “annual food crops inflation has continued to rise (to 20.7% in March from 18.8% in February) as a result of drought that affected production in many parts of the country,” Mutebile said.

Bank of Uganda is skeptical about the projected GDP growth of 4.5% in the 2016/17 financial year due to the weak economic performance in the first two quarters of this financial year.

According to the latest GDP data by UBOS, Uganda’s economy grew by only 0.8% (quarter on quarter) between September and December 2016, following a shrink by 0.1% in the first quarter of 2016/17.

The 0.8% growth was driven majorly by the service sector including tourism, said BOU.

Mutebile said the impact of the adverse weather conditions are responsible for the anticipated lower growth this financial year. The agricultural sector which is the bedrock of the economy is said to have contracted by 2% quarter on quarter between September 2015 and September 2016.

Nevertheless, the current account has improved due to stronger export proceeds and worker remittances, coupled with weak import growth.

“Coffee exports grew in both value and volume, consequently boosting our exports. Uganda exported 3.74 million bags of coffee between February 2016 and February 2017, an annual increase of 100,000 bags. Global coffee prices rose from USD 1.6 to USD 2.5 per kilogram,” Dr. Adam Mugume, the Executive Director for Research at Bank of Uganda said.

He said there’s a positive trend in private sector credit and it is likely to exceed 7% by June this year.

With a slash in the CBR, it remains to be seen whether commercial banks will follow suit and reduce their lending rates. As of January 2017, the average prime lending rate stood at 23.2% with Stanbic Bank having the least (19.5%) since April 1.


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