BOU Warns Over Global Shocks, Lending Rate Further Cut to 14%

Bank of Uganda Governor Prof. Emmanuel Tumusiime Mutebile
(2nd L) issuing the August Monetary Policy statement together with the
Deputy Governor Louis Kasekende (R) and Director of Research Dr. Adam
Mugume (L) on Monday

The Central Bank has Monday cut its lending rate by 1 percentage point from 15 to 14 in a bid to further ease its monetary policy. This, sale the Governor Tumusiime Mutebile said will also help to support a recovery of private sector credit to spur real economic growth.

The rediscount rate and the bank rate has also been reduced to 18 percent and 19 percent respectively.
While issuing the monetary policy statement for August, Prof. Mutebile said that inflation continues on a downward trend since the end of December 2015.

Annual headline and core inflation declined to 5.1 percent and 5.6 percent respectively in July 2016 from 5.9 percent and 6.8 percent in June this year.

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Bank of Uganda attributes the drop in inflation over the last seven months to the stable exchange rate, lower fuel prices and subdued domestic demand.

“The economy is projected to grow more strongly in the 2016/17 financial year at about 5.5 percent compared to 4.6 percent that was estimated in 2015/16 financial year,” the Governor stated.

He added that this growth will be supported by the recovery in private sector credit as well as higher public infrastructure spending.

“However the uncertainty in international economic activity has increased substantially and is likely to constrain international demand for Uganda’s export.”

In response to whether the reduction of the CBR (Central Bank lending rate) will influence a similar drop in commercial bank lending rates,

Mutebile said; “Uganda is a free market. Nobody is in position to dictate terms to private banks but I hope that the pressure exerted on these banks by BOU and politicians will see them decrease their lending rates.”

Dr. Adam Mugume the Bank of Uganda Director of Research noted that with global shocks such as Brexit, the oil prices, insurgency in South Sudan and outcomes of DRC polls, short term economic performance will be difficult to determine.


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