Bank of Uganda drops base rate down to 11%

April 12, 2017 in Business, Finance, Policy by Editor

April 12—Bank of Uganda (BoU) has cut the Central Bank Rate (CBR) by 0.5 percentage points to 11% this month in response to lower inflation during March and business concerns that borrowing costs remain too high.

However, the band on the CBR has been maintained at +/-3 percentage points and the margin on the rediscount rate at 4 percentage points on the CBR. The re-discount rate and bank rate have been reduced to 15% and 16% respectively.

Bank of Uganda Governor, Emmanuel Tumusiime Mutebile, said “The stability of the shilling exchange rate and subdued domestic demand have contributed to the dampening of inflationary pressures.”

Annual headline and core inflation declined to 6.4% and 4.8% respectively in March from the previous 6.7% and 5.7% experienced during February.

In a statement as chair of the Monetary Policy Committee, Mutebile said  given that core inflation is forecast to remain around the medium term target of 5% and in line with efforts to support private sector credit and economic growth momentum, “The Bank of Uganda believes there is scope to continue easing monetary policy,” he said.

He however pointed out that achieving the projected GDP growth of 4.5 percent as earlier predicted for 2016/17 is unlikely to be achieved as a result of the weak economic performance in the first two quarters of the current financial year.

“The anticipated lower growth in FY 2016/17 is largely driven by supply side factors, notably the impact of adverse weather conditions on agricultural output. The agricultural sector contracted on average by about 2 percent quarter-on-quarter for four consecutive quarters to the second quarter of 2016/17,” Mutebile said.

Louis Kasekende the Deputy Governor said “We need to improve practices that address all the constraints affecting the whole agricultural sector to ensure a recovery in 2017.”