October 04, 2018

Central bank raises base rate by one point to 10 pc

October 4, 2018—Rising prices and a weakening shilling against the United States dollar has convinced the Bank of Uganda (BoU) Monetary Policy Committee (MPC) to raise the benchmark Central Bank Rate (CBR) up by one point to 10 pc. The CBR has been at 9 percent since February.

Mutebile said the economy is expected to remain on a steady growth path, but the shilling is vulnerable against the US dollar.

It is the CBR that most financial institutions use as a marker to price their prime lending rates. But overall interest rates have been falling since early 2017 with the lowest PLR (PLR) currently posted by Stanbic Bank at 17.5 pc and the average across all banks at about 22.5 pc.

Bank Governor, Prof. Emmanuel Tumusiime-Mutebile said on Wednesday, “Inflation is on an upward trajectory and core inflation is projected to rise above the target five percent within the next 12 months.”

Earlier this week, the Uganda Bureau of Statistics reported that Annual Headline inflation was dipped to 3.7 percent during the year ending September 2018 compared to 3.8 percent in August. However core inflation on which the BoU uses as reference for setting the CBR went up from 3.5 percent to 3.9 percent during the same period.

Mutebile said, “The strong rebound in economic growth in financial year 2017/18 has closed the negative output gap and with growth projected to remain robust in FY2018/19 core inflation could rise higher in the remaining part of the fiscal year.”

The Governor said the economic outlook in the medium term, two to three years ahead remains largely unchanged since the August 2018 MPC meeting. Economic growth has been solid since the second half of 2017 supported by the global economic upturn and the easing of domestic financial conditions. “The economy is expected to remain on a steady growth path supported by robust domestic demand growth, public infrastructure investments, improving agricultural productivity and recovery in foreign direct investment,” Mutebile said.

Earlier on Wednesday the Stanbic Bank Uganda Purchasing Managers’ Index (PMI) puts the September reading at 54.2 up from 52.1 in August and one of highest in recent months.

Estimated GDP growth for FY 2018/19 is presently put at 6.5 percent, but the Uganda shilling remains vulnerable in light of rising oil prices which some analysts, including those at Bank of America Merrill Lynch, predicting prices may hit $100 for a barrel of Brent in 2019.

Last month, the United States Federal Reserve (Central Bank) raised interest rates. This has the effect of attracting dollars back to America and reducing supply for far flung countries like Uganda.

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