sales http://dan-caragea.ro/wp-includes/class-wp-network.php geneva; font-size: small;”>“Given the improvement in the prospects for inflation together with the need to stimulate stronger domestic demand growth, cost http://chesapeakecatsanddogs.org/wp-content/plugins/nextgen-gallery/products/photocrati_nextgen/modules/wordpress_routing/module.wordpress_routing.php the BoU will reduce its policy interest rate – the Central Bank Rate (CBR) – by 2.0 percent points to 17.0 percent for the month of August, symptoms ” Mutebile told journalists today.
“In the last two months, 7 day interbank interest rates have tracked the CBR quite closely on average. The reduction in the CBR in August will bring about a further fall in interbank interest rates and thus the marginal cost of funds for the commercial banks,” he noted.
“The BoU expects that the fall in the cost of funds will induce Commercial Banks to lower their lending rates, which is necessary to stimulate a recovery in private sector credit,” said Mutebile.
The band on the CBR will remain at 3 percentage points and the margin on the rediscount rate will remain at 4 percent points on the CBR.
The rediscount rate and the Bank rate will now be set at 21.0 percent and 22.0 percent respectively in August 2012.
The directive is likely to restore some confidence the business community and encourage borrowing following months of economic volatility.
Mutebile said the disinflationary momentum in the Ugandan economy strengthened in July, with both headline and core inflation rates falling sharply, to 14.3 percent and 15.4 percent respectively, compared to 18.0 percent and 19.6 percent respectively in the previous month.
“Since the beginning of the year, inflationary pressures in the economy have been subdued; the monthly headline core inflation rates have averaged 0.4 percent and 0.3 percent respectively, which translates to less than 5 percent in terms of annual inflation,” he noted. Food crop prices have fallen in each of the last two months because of good harvests.
Although there was a modest recovery in real economy activity in the third quarter of 2011/12, real output remains below the economy’s potential level and is likely to remain so in the near term because of subdued domestic and the deterioration in the global economic outlook, including the growth prospects for economies which are important export markets for Uganda, such as those in Europe.
He said the shilling denominated loans to the private sector were stagnant during 2011/12, mainly because of high borrowing costs.
In contrast, foreign currency denominated loans which carry lower interest rates were much more buoyant.
To ensure that real GDP growth of at least 5 percent can be achieved in 2012/13, Mutebile said, it will be necessary to strengthen domestic demand, especially by stimulating a recovery of commercial bank lending to the private sector.
“Taking account of recent developments in the economy, notably the trends in monthly inflation noted above, the weakness of real output, the stagnation in domestic currency credit and monetary aggregates, the stability of the nominal exchange rate and the decline in global commodity prices, the BoU has revised its forecast of inflation downward for the rest of 2012,” he affirmed.
According to the governor, annual core inflation is now expected to fall to single digits by the end of the third quarter of the calendar year and then to around 5 percent in the first half of 2013.
“The main upside risk to the inflation forecast is posed by potential volatility in the exchange rate. To mitigate this risk, the BoU will take decisive actions to avert any instability in the exchange rate,” he concluded.