Uganda’s Central bank keeps benchmark lending rate steady

0

The Bank of Uganda held its benchmark interest rate yet in an effort to keep inflation down and below target and to support economic growth.

The central bank rate (CBR) was kept unchanged at 9 per cent, initially set in October 2019 and maintained in December. The band on the CBR was maintained at positive or negative 3 percentage points while the rediscount rate remained at 13 per cent and the bank rate remained 14 per cent.

“The evaluation of the macroeconomic developments and outlook based on the available information set suggests that, at the current CBR, the monetary policy stance is accommodative and that inflation will converge to target in the medium term while supporting economic growth,” said the monetary policy statement explaining the decision.

The Bank said that Uganda’s economy is expected to expand at between 5.5 and 6 per cent in the 2019 fiscal year, which runs to June 2020 and accelerating to an average of 6.3 per cent in the medium term. However, this is below its’ estimate of 6.5 per cent, the highest level of growth the Bank of Uganda thinks the economy can sustain in that period.

Also Read: Chinese firm to develop the largest solar plant in Uganda

“The economic growth is weighed down by weak growth in exports,” the statement said. “Moreover, domestic public sector financing continues to grow, increasing risk premiums and pushing borrowing costs for the broader economy higher despite the accommodative monetary policy stance.”

According to the Bank, the coronavirus outbreak in China has also lowered the near-term economic growth outlook and if it persists for an extended period, will have a large downhill effect on global economic activity than what the current reports show.

It also mentioned the trade dispute between the U.S and China and the “recent escalation of geopolitical tensions in the Middle East” as risks.

Domestic pressures which include constraints to agricultural production including the current invasion by desert locusts and uncertain weather patterns. And while the economic impact arising from supply chain disruptions caused by the coronavirus outbreak in China “will be of short duration, some sectors could be significantly affected,” Bank of Uganda said.

“The BoU assesses that risks to the projected path for inflation are fairly balanced,” the statement said. “Demand-side pressures remain subdued. Global inflation is projected to remain low. Food price inflation remains modest although unpredictable weather patterns and the desert locust invasion create some caution about the trajectory of future food crop prices.

Also Read: Uganda Consumer price inflation moderates in January

Comments are closed.