Wednesday, December 16, 2015

Uganda maintains rate as core inflation stabilizes

    Uganda's central bank left its benchmark Central Bank Rate (CBR) steady at 17.0 percent, along with its other rates, saying it had lowered its forecast for core inflation and now expects it to peak around 10 percent in the third quarter of next year before gradually declining towards its 5.0 percent target over the medium term.
    The Bank of Uganda (BOU), which has raised its rate five times this year by a total of 600 basis points, noted that inflation continued to rise in November but core inflation had stabilized in the last three months after accelerating earlier in the year as the impact of exchange rate depreciation had been partly offset by much lower services inflation.
    "This indicates that the tightening of monetary policy since April 2015 has begun to curb inflationary pressures," the BOU said.
    Uganda's headline inflation rate rose to a 2015-high of 9.1 percent in November from 8.8 percent in October while core inflation rose to 6.7 percent from 6.38 percent in October, but was slightly below 6.71 percent in September.
    Uganda's shilling started to depreciate in early 2014 but in May this year the fall accelerated and the exchange rate hit a record low around 3,696 in late September.
    The shilling then recovered to around 3,309 on Dec. 7 before it again eased and was trading at 3,399 to the U.S. dollar today, down almost 19 percent this year.  
    The BOU maintained its forecast for economic growth in the 2015/16 financial year of 5 percent but added there were downside risks to this growth from the challenging external economic environment and the risks of a further decline in global commodity prices and reduced access for developing countries to external financial due to heightened perceptions of risk, and "possible monetary policy tightening in the US."
   "Consequently, our balance of payments in the short to medium term will remain vulnerable to external shocks," the central bank said.
    Uganda's economy expanded by an annual rate of 4.9 percent in the third quarter, down from 7.1 percent in the second quarter.



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