Inflation remains stable as Bank of Uganda maintains CBR at 10 per cent

By Najib Mulema

Bank of Uganda (BoU) has decided to maintain the Central Bank Rate (CBR) at 10 per cent.

CBR is the rate of interest which a central bank charges on its loans and advances to commercial banks.

“Monetary Policy Committee (MPC) assessed the risks and uncertainties surrounding the inflation and growth outlook. Based on the assessment, the MPC decided to maintain the CBR at 10 per cent. The band on the CBR will remain at +/-3 percentage points and the margin on the rediscount rate at 4 percentage points on the CBR. Consequently, the rediscount rate and the bank rate have been set at 14 per cent and 15 per cent, respectively,” said Prof. Emmanuel Tumusiime-Mutebile, the Governor BoU in a press release dated December 5, 2018.

In October, MPC raised the CBR by one per cent up to make it 10 per cent.

For three months, BoU had maintained the interest rate at nine per cent as a way of allowing the economic rate through influencing keeping commercial banks’ lending rates to the private sector low.

On the other hand, Mutebile revealed that domestic economic activity is projected to remain on a steady expansion path in Financial Year (FY) 2018/2019 and over the coming years, keeping output slightly above potential.

“The BoU’s Composite Index of Economic Activity (CIEA) indicates stronger economic performance in the first 10 months of 2018, with an annualised growth rate of 7 – 8 per cent. This is an indication that economic growth in FY2018/19 could be higher than the previous projection of six per cent,” he said.

Adding, “The strong growth is in part supported by the accommodative monetary policy stance and the associated rebound in private sector credit extension, ensuing strong domestic demand conditions, multiplier effects of public infrastructure investments and improved agricultural productivity. The positive growth performance is expected to be sustained over the coming years, partly driven by public infrastructure investment,”

However, Mutebile said there are risks to the projected economic growth momentum including the slow execution of public investment projects; unpredictable weather conditions, which could affect agricultural productivity; and the slowdown in global growth and global financial uncertainty, which could affect the external position.

Mutebile also disclosed that growth in Private Sector Credit, though on a recovery path, remains below its historical trend and its contribution to economic growth could be weighed down by increased public borrowing requirements and the associated further increase in lending interest rates.

Inflation remains stable:

Mutebile noted that the Consumer Price Index (CPI) data released by the Uganda Bureau of Statistics (UBOS) indicates that inflation remained subdued; with annual headline inflation remaining stable at 3.0 percent in November 2018.

“Core inflation on the other hand declined marginally to 3.4 per cent from 3.5 per cent in October 2018. The low inflation environment continues to be supported by low food inflation.”