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Uganda cuts rate another 100 bps to support growth

Tuesday, October 18, 2016 6:14
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     Uganda’s central bank cut its benchmark Central Bank Rate (CBR) by 100 basis points to 13.0 percent, saying there is scope to ease its monetary policy stance “to support the domestic economic growth momentum, especially against the ongoing global economic slowdown” as core inflation is forecast to remain around the medium term target in the next 12 months.
     The Bank of Uganda (BOU) has now cut its key rate by 400 basis points this year. The BOU also lowered its rediscount rate and bank rate to 17 percent and 18 percent, respectively, as the band around the CBR was maintained at plus/minus 3 percentage points and the margin on the rediscount rate at 4 percentage points.
     Uganda’s core inflation rate dropped to 4.1 percent in September from 4.9 percent in August while headline inflation eased to 4.2 percent from 4.8 percent, with the central bank saying its forecast for 2016 and 2017 remains unchanged from August despite a slightly higher forecast for headline inflation due to higher-than-expected food prices.
    BOU expects core inflation to remain around its midpoint target of 5.0 percent in the current 2016/17 financial year, which began July 1, with the exchange rate and the impact of less-than-normal rains on harvests and food prices the main uncertainties.
    Inflation is currently held back by weak consumer demand, decreasing inflation expectations and a relatively stable exchange rate of the shilling on the back of moderately tight monetary policy in the past year. However, drought in many parts of Uganda has pushed up food prices, with annual food crop inflation up to 5.1 percent in the last three months from minus 1.9 percent, the BOU said.
    After depreciating in 2014 and 2015, the shilling has been stable since March this year and was trading at 3,465.1 to the U.S. dollar today, down 2.7 percent this year.
    Uganda’s economy grew by 3.9 percent in the second calendar quarter of this year from the same period last year and by 4.8 percent in the 2015/16 financial year, up from an earlier BOU estimate of 4.6 percent.
    Recent data point indicate that a “significant pick-up in economic activity” in the fourth quarter of the fourth quarter of 2015/16 had carried over to the first quarter of the current fiscal year,  BOU said.
    The BOU said its overall economic outlook remained largely unchanged but lowered its forecast for economic growth in 2016/17 to 5.0 percent from its August forecast of 5.5 percent.
    For financial year 2017/18 BOU forecast growth of between 5.0 percent and 5.5 percent.



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