Bank of Uganda retains central bank rate at 17 percent in February

KAMPALA, Uganda, Capital Markets in Africa —Uganda’s central bank kept the Central Bank Rate (CBR) at 17 percent on Wednesday, saying inflation outlook has improved slightly, mainly duly to the exchange rate, according to the Monetary Policy Committee (MPC) Statement for February 2016 signed by Professor Emmanuel Tumusiime-Mutebile, Governor Bank of Uganda. 

The MPC believes that the decision to keep the CBR will curb the rise on core inflation over the next two or three quarters and then gradually bring it back to the target of 5 percent over the medium term.

In the Monetary Policy statement, the band on the CBR is maintained at +/- 3 percentage points and the margin on the rediscount rate at 4 percentage points on the CBR. The rediscount rate and the bank rate were also left unchanged at 21 percent and 22 percent, respectively.

In term of economic growth, economic growth was higher during the final quarter of 2015 than in the previous quarter and forecast real economic growth of 5 percent in FY2015/16. While the key drivers shaping the outlook largely remain the same as in the December 2015 monetary policy report, the forecast for GDP growth has been revised marginally to 5.5 percent in FY 20 16/17 from 5.8 percent. The marginal reduction reflects the current global economic weakness and volatility in the international financial markets.

“Annual headline and core inflation declined to 7.6 percent and 7.1 percent, respectively in January 2016. Food crop inflation declined from 16 percent to 12.3 percent. A fall in food crop prices, by 4.7 percentage points in January 2016 contributed to the reduction in headline inflation. Although the annual core inflation declined in January, monthly core inflation rates have increased in the last three months, reflecting persistence of underlying inflationary”, according to the MPC’s press statement.

Furthermore, the Central Bank thinks the impact of the El Nino weather on food prices has been mild so far and forecast that core inflation will peak at 6-8 percent in the second quarter of 2016, before flattening out in the second half of 2016, and then gradually falling back to the 5 percent target during the course of 2017. Nonetheless, there are significant upside risks to this outlook, including the future path of the exchange rate, which will be influenced by domestic and external factors, and the possibility of adverse weather conditions following the El Nino weather phenomenon.

In term of economic growth, economic growth was higher during the final quarter of 2015 than in the previous quarter and forecast real economic growth of 5 percent in FY2015/16. While the key drivers shaping the outlook largely remain the same as in the December 2015 monetary policy report, the forecast for GDP growth has been revised marginally to 5.5 percent in FY 20 16/17 from 5.8 percent. The marginal reduction reflects the current global economic weakness and volatility in the international financial markets.

Leave a Comment