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BoU reduces Central Bank Rate amid slow economic growth

CONRAD AHABWE | PML Daily Senior CorrespondentbyCONRAD AHABWE | PML Daily Senior Correspondent
October 7, 2019
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Emmanuel Tusiime Mutebile, the Central Bank boss in his office (PHOTO/File)

KAMPALA – Bank of Uganda (BoU) has reduced the Central Bank Rate (CBR) to 9 percent for the month of October in a bid to boost the economy, which he said is currently witnessing sluggish growth.

BoU Governor Emmanuel Tumusiime-Mutebile said the reduction is also in response to the pressures on the global economic stage

‘‘The economy continues to grow but at a slowing rate. Economic activity seems to have slackened in the first half of 2019 compared to the second half of 2018. Indeed, the recently released quarterly GDP estimates by Uganda Bureau of Statistics (UBOS) indicate that GDP growth slowed in the second half of Financial Year (FY) 2018/19,” Mr Mutebile said at a press conference on Monday, October 07, 2019.

He added that widening fiscal and current account deficits, coupled with public sector domestic financing needs, could exert pressure on the lending interest rates.

‘‘In addition, the BoU’s high-frequency indicator of economic activity, the Composite Index of Economic Activity (CIEA), points to moderation of economic activity in the first quarter of FY 2019/20. The outlook is uncertain, particularly as a result of the unfavourable global economy. Moreover, a combination of widening fiscal and current account deficits, coupled with public sector domestic financing needs, could exert pressure on the lending interest rates leading to further moderation of economic growth,’’ Mr Mutebile said.

The Consumer Price Index (CPI) data for September 2019, released by UBOS, indicates that inflation remained subdued. Annual headline and core inflation declined to 1.9 percent and 2.5 percent, respectively from 2.1 percent and 2.7 percent in August 2019.

The decline in inflation was in part driven by a relatively stronger shilling, moderation of domestic demand and lower food prices. Food crops inflation declined from minus 1.4 percent in August 2019 to minus 3.0 percent in September 2019.

The Governor said that inflation outlook provides room for a reduction in the policy rate to support economic growth. ‘‘The economy still has spare capacity and lower interest rates will help reduce the output gap. Against this backdrop, the BoU has decided to reduce the CBR by 100 basis points to 9 percent. The band on the CBR will remain at +/-3 percentage points and the margin on the rediscount rate and bank rate will remain at 4 and 5 percentage points on the CBR, respectively. Consequently, the rediscount rate and the bank rate have been set at 13 percent and 14 percent, respectively.”

He added: “The BoU will continue to monitor emerging price and output developments to ensure that monetary policy decisions remain consistent with price stability while being supportive of sustained noninflationary economic growth over the medium term.

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Tags: Composite Index of Economic ActivityEmmanuel Tusiime MutebiletopUganda Bureau of Statistics

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