Wednesday, April 2, 2014

Uganda holds rate, sees lower short-term inflation

   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.


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