Bank Of Uganda Maintains CBR At 9% As Inflation Goes UpKathryn
Bank of Uganda has announced that it will for the fourth month in a raw maintain the central borrowing rate (CBR) at 9% aimed at stabilizing the commercial lending rates.
This was revealed by the BoU Governor Emmanuel Mutebile on Monday 13th as he released the monetary policy statement for August 2018.
Mutebile further noted an increase in inflation for the month of July 2018 up to 3.1% from the 2.1% registered in June.
This increase is believed to have resulted from the newly imposed taxes like fuel excise tax and one off-off price changes from communication taxes, global oil prices and the depreciating shilling against the dollar.
According to Mutebile, the annual core inflation also rose from 0.8 in June to 2.5% in July 2018.
However the annual food crops inflation remained subdued with a slight decline from 2.3 in June down to 2.0% in July.
“The weaker shilling exchange rate combined with higher oil price assumptions could result in a more elevated inflation trajectory. Food prices are projected to remain low in the forecast horizon and are not seen as a major risk to the inflation outlook, but this can quickly change depending on the weather conditions,” said Mutebile.
Despite the economic challenges, the Governor cited that the country’s economic growth continues to strengthen.
“The real Gross Domestic Product (GDP) growth for FY 2017/18 is estimated at 5.8 percent compared to 3.9 percent in FY 2016/17. Economic growth is projected to strengthen further in FY 2018/19 to 6 percent and to an average of about 6.3 percent over the medium-term supported by public infrastructure investments, improving agricultural productivity, recovery in Foreign Direct Investment (FDI), and strengthening private sector credit (PSC) growth partly as a consequence of the monetary policy easing,” he said.
He added; “Indeed, weighted average lending rates fell to 17.7 percent in June 2018 from 25.2 percent in February 2016 when Bank of Uganda (BoU) started easing monetary policy.”
Nevertheless, there are downside risks to the growth outlook including challenges relating to financing of public investment programmes and the weak external balance position coupled with escalation of global trade tensions.
Although public investment programs could substantially raise output and be self-financing in the long run, transitional challenges of funding these investments can be formidable, and may crowd out private investment and consumption, thus delaying the growth benefits of public investment.
Inflation is forecasted to continue rising in the range of 6-7% in the second half of FY 2018/19 but will stabilize around the medium-term target of 5 percent by end of 2019.
He noted that a key risk to the inflation outlook is the shilling exchange rate which remains vulnerable to domestic market conditions and the possibility of tighter global financial conditions and food prices being projected to remain low in the forecast horizon, which are not seen as a major risk to the inflation outlook but rather determined by changes in the weather conditions.
The Central Bank has over the years done a leading role in maintaining a neutral monetary policy stance so as to keep inflation relatively close to a 5% target, which is projected to contribute to attaining the Country’s sustainable economic growth.