Exchange Rate Depreciation Drives Inflation, BoU Raises CBR to 13%

Bank of Uganda Governor, Prof. Tumusiime-Mutebile

2015 Uganda cup final

Tuesday 16th June

SC Villa 1-0  KCCA FC

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STATUS: halftime

Augustine Nsumba has given SC Villa an early lead after brushing a well curved 31st minute free kick from Erisa Sekisambu in a highly contested first half of the 2015 Uganda cup played at the Namboole national Stadium.

A minute earlier villa’s lanky right back, mind Derrick Walulya saved Paul Mucurezi’s goal bound header just at the goal mouth. Mucurezi had beaten keeper Nicholas Sebwato for the ball inside the box following a mix-up in the Villa defense.

KCCA FC started the game on high spirit with well- executed counter attack but Mucuurezi blew the end product over the bar. Five minutes later there was a moment of madness on KCCA”s goal when Ocan failed to clear an aerial ball which  dropped in the six yard box but Skipper Sakka Mpima was on time to clear the danger.

Penalty hero

Villa began to pile pressure on their city counterparts and their effort was evident on the 22nd minute, viagra when youngster Timothy Awany was adjudged by to have fouled Sekisambu inside the forbidden area resulting to a penalty.

Sekisambu, just like in Ntungamo, stepped up to take the ensuing penalty but Benjamin Ocan, guessed the right direction and saved the penalty before Mpiima coming to clear of the zone.

The foul came from a well-executed counter attack which result

SC Villa strting XI: Nicholas Sebwato, Isaac Muleme, Fahad Kawooya, Hassan Waswa, Derrick Walulya, Isaac Kirabira, Augustine Nsumba, Dennis Kamanzi, Krizestom Ntambi, Erisa Sekisambu.

Coach: Ibrahim Kirya

KCCA FC:Benjamin Ocan, Sakka Mpiima, Samuel Namwanja, Ayub Kizza, Timothy Awany, Ivan Ntege, Michael Birungi, Tom Masiko, Hassan Waswa, Paul Mucuurezi, William Wadri.

Coach: Abdullah Mubiru
Bank of Uganda has partly attributed the rise in core inflation to the pass-through effects of the exchange rate depreciation and inflation expectations before announcing a raise of the Central Bank Rate (CBR) by 1 percentage point to 13 percent.

Governor Emmanuel Tumusiime-Mutebile revealed Tuesday that inflation continued to rise in May 2015 with annual core inflation edging up to 4.8 percent from 4.6 percent in April 2015.

Annual headline inflation also rose in May to 4.9 percent from 3.6 percent in April.

“The main contributions to the May headline inflation came from the categories of services which accounted for 2.4 percent points; other goods, viagra approved which accounted for 1.7 percentage points; and food  crops, which accounted for 0.9 percentage points,” said Mutebile while issuing the much anticipated Monetary Policy Statement for June 2015.

“Much of the increase in inflation is attributed to the currency depreciation and inflation expectations,” he added.

In recent months, the pressure on the Uganda shilling against other currencies particularly the dollar has continued to bite, worrying businessmen.

When exchange rate movements became so rapid, the Central Bank quickly intervened to dampen volatility – selling dollars, which restored some stability to the market.

The dollar has itself strengthened dramatically on global markets, for example by 13 percent against the Euro since the start of 2015.

Uganda’s demand for dollars has also increased strongly, mainly from the corporate sector, to fund imports and dividend payments to foreign shareholders following improved corporate profits in 2015.

Yet, export earnings have declined mainly because of problems in regional markets such as South Sudan, hence the widening of the current account deficit.

By Tuesday evening, the Ugandan shilling had edged down against the dollar with the local currency being quoted by the Central Bank at Shs 3,196.3 buying and Shs 3,206.3 selling.

Mutebile said the BoU’s conditional inflation forecast has changed since the previous meeting of monetary policy committee.


“The exchange rate pass-through and strengthening of economic activity both at home and abroad will exert further upward pressure on consumer prices over the medium term in the absence of further tightening. Annual core inflation is now projected to rise to 8-10 percent by the end of 2015/16; an increase of 1 percentage point compared to the April 2015 forecast,” the Governor observed.

“In such circumstances, an increase in the Central Bank Rate is appropriate given high inflationary pressures and the expected strengthening in demand, and to ensure that medium term inflation converges towards the BoU’s policy target of 5 percent during the course of 2016/17.

Therefore BoU will raise the CBR by 1 percentage point to 13 percent. The band on the CBR will be maintained at +/-2 percentage points and the margin on the rediscount rate at 3 percentage points on the CBR. The rediscount rate and bank rate will therefore be increased to 16 percent and 17 percent, respectively. BoU will tighten monetary policy further should there be deterioration in the inflation outlook.”

Mutebile said aggregate demand has improved though exports of goods and services remain depressed, which is a key drag on aggregate demand.

Finance Minister Matia Kasaija said in the 2015/16 national budget total export revenue for the period April 2014 to March 2015 are estimated at US$ 2,701.6 million, compared to imports of US$ 5,048.9 million over the same period.

“The surge in import demand has been inevitable, given an increase in infrastructure investments in oil, the road network and Karuma and Isimba Hydropower projects,” said Kasaija.

Mutebile further said indicators of economic activity point to a relatively strong real Gross Domestic Product (GDP) growth in the fourth quarter of 2014/15 supported by faster growth in private sector borrowing and a recovery in the agricultural sector.

Real GDP growth is projected at 5.3 percent for 2015/15 and 5.8 percent for 2015/16, driven by higher public investment announced in the budget and rebound in private sector demand.

Mutebile said the domestic borrowing requirement in 2015/16 is no larger than that of 2014/15, adding, “Bank of Uganda believes that the more expansionary fiscal stature of the 2015/16 budget will support economic growth and will not threaten macroeconomic stability.”

Total approved budget for next financial year is Shs 23,972 billion.

Out of this, Shs 17,329 billion is allocated for spending by Ministries, Departments and Agencies (MDA’s), which includes statutory expenditures amounting to Shs 1,148 billion.  Shs 6,643 billion is debt repayments plus interest on total debt.

The total debt repayment includes Shs 4,787 billion which is meant to pay maturing domestic debt; Shs. 200 billion for recapitalization of the Bank of Uganda; Shs. 1,370.5 billion and Shs 285.7 billion for domestic and external debt interest payments respectively.

Mutebile observed that the “current account deficit is projected to widen to 10.3 percent of GDP in 201/16 from 8.4 percent in the 2014/15 on account of higher non-oil private sector imports and public infrastructure related imports; lower personal transfers; and weak exports, owing to subdued global commodity prices and lower aggregate demand in key markets.”


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