BUSINESS

BoU registers decline in inflation, cuts base lending rate

The Bank of Uganda has registered a decline in inflation in the month of January.

Speaking at the Central Bank’s monthly press briefing, Governor Emmanuel Tumusiime Mutebile said inflation declined to 3.0 percent and 2.6 per cent in January 2018 from 3.3 percent and 3.0 percent, respectively in December 2017.

He attributed the decline in inflation partly to low food prices, as annual food inflation declined to 2.7 per cent in January 2018  from 3.5 per cent in December 2017.

“For Electricity, Fuels and Utilities (EFU) the annual inflation rate also declined to 9.8 per cent from 12.5 per cent in December 2017. Over the next five years, economic growth is projected to average 6.3 per cent, boosted by public investments, increasing growth in consumption, and improved agricultural productivity.” Mr Mutebile revealed.

He however, noted that there are downside risks to this outlook. For one he pointed out that the growth of private sector credit remains below historic levels and the cost of credit remains relatively high for micro and small loans while the cost to  corporates have declined.

Meanwhile, inflation is forecast to increase gradually, as the economy strengthens with both the headline and core inflation converging to 5 per cent by the second half of 2019.

Bank of Uganda (BoU) estimates that there is still spare capacity in the  economy that will dampen inflationary pressures. “Given the objective of keeping inflation close to the target and the estimated

spare capacity in the economy, a cautious easing of monetary policy is warranted to further boost private sector credit growth and to strengthen the economic growth momentum,” Mr Mutebile revealed.

BoU thus reduced the Central Bank Rate (CBR) by 50 basis points to 9.0 percent.

Consequently, the rediscount rate and the bank rate have been reduced to 13.0 percent and 14.0 percent, respectively.

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