2nd April 2014
Uganda’s central bank maintained its Central Bank Rate (CBR) at 11.5 percent, saying its neutral policy stance is warranted given its current projections for inflation and economic growth.
The Bank of Uganda (BOU), which last cut its rate by 50 basis points in December for a net 50 point reduction in 2013, revised downward its forecast for core inflation to 4-5 percent over the next few months from February’s forecast of 5-6 percent in the first half of the year after headline and core inflation eased in February due to a strengthening of the exchange rate.
But over the next 12 months, the BOU still sees core inflation rising to between 5.5 and 6.5 percent and cited potential risks of stronger inflation from a deprecation of the exchange rate, stronger domestic demand from the fiscal sector and higher food prices due to drought and regional food shortfalls.
News agency Reuters reported that BOU Governor Emmanuel Tumusiime-Mutebile told a news conference that core inflation should rise to a range of 6-7 percent by April 2015.
“The magnitude and timing of possible declines in foreign aid are also a source of uncertainty for the balance of payments and the economy,” said the BOU, which targets core inflation of 5.0 percent.
In its monetary policy statement, the BOU referred to a decline in February headline inflation to 6.7 percent from 6.9 percent in January while core inflation fell to 3.7 percent from 4.6 percent.
But on Monday the bank said, citing Uganda’s statistics bureau, headline inflation rose to 7.1 percent in March from a revised 6.8 percent in February while core inflation fell to 3.7 percent in March from a revised 3.9 percent in February.
Uganda’s shilling appreciated by 6.2 percent in 2013 but since late February it has declined, trading at 2,545 to the U.S. dollar today compared with 2,525 at the end of 2013.
The bank said economic growth in the current 2013/14 fiscal year, which ends on June 30, is still projected to be relatively buoyant, supported by fiscal stimulus, a stronger global environment, strong inflows of foreign direct investment and household consumption. However, it said weak bank credit growth posed a risk to this outlook.
Tumusiime-Mutebile also told a news conference that growth in 2013/14 was expected to be 6 percent compared with 5.8 percent in fiscal 2012/13, rising to 6.5 percent in 2014/15.
The BOU had forecast growth of 6.0-6.5 percent in the current fiscal year.
Uganda’s Gross Domestic Product contracted by 0.6 percent in the third calendar quarter from the second quarter for annual growth of 2.2 percent, down from 5.8 percent in the second quarter.
3rd December 2013
Uganda’s central bank cut its central bank rate (CBR) by 50 basis points to 11.5 percent, saying an an accommodative stance was warranted due to an expected stabilization of core inflation around the bank’s target and the need to further support private sector investment.
The surprise rate cut comes a month after the Bank of Uganda (BoU) described its stance as neutral and a warning in October that it could raise rates if core inflation were to accelerate. The BoU raised its rate by 100 basis points in September.
The central bank said it would continue to assess global economic and financial developments and “take appropriate actions to maintain future average annual core inflation around the Bank’s medium-term target of 5 percent.”
Uganda’s headline inflation rate fell to 6.8 percent in November from 8.1 percent in October with core inflation easing to 7.0 percent from 7.2 percent. Food crops inflation was a minus 4.3 percent in November, higher than a minus 1.1 percent in October.
The BoU forecast inflation edging further down in the next two to three months due to the impact of the crop harvests to about 5.5-6.5 percent but then rising to 6-7 percent in the second half of 2014.
Although the bank said there were potential risks to inflation from domestic demand pressures and the global economic recovery, it expects core inflation to stabilize around 5 percent in the medium term.
“Real economic activity continues to show signs of recovery, in part boosted by the accommodative policy stance and public investment,” the bank said, adding that growth should benefit from private consumption and investment activity.
“Nonetheless, economic growth remains below potential and downside risks pertaining to the uncertain global economic environment persists,” the BoU added.
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