Wednesday, April 12, 2017

Uganda cuts rate another 50 bps to boost credit, growth

     Uganda's central bank cut its Central Bank Rate (CBR) by another 50 basis points to 11.0 percent, saying there was scope to continue easing its monetary policy stance "given that core inflation is forecast to remain around the medium-term target of 5 percent and in line with efforts to support private sector credit and economic growth momentum."
     The Bank of Uganda (BOU) has now cut its rate by 100 basis points this year, following a similar reduction in February, and by 600 points since embarking on an easing cycle in April 2016.
    Uganda's headline inflation rate eased to 6.4 percent in March from 6.7 percent in February as core inflation declined to 4.8 percent from 5.7 percent.
    "The stability of the shilling exchange rate and subdued domestic demand have contributed to the dampening of inflationary pressures," the BOU said.
     On the other hand, food inflation has continued to rise to 20.7 percent in March from 18.8 percent in February due to drought that has affected food production.
     But the central bank's forecast indicates that the near-term outlook for inflation has improved due to the stable shilling, with the revised forecast calling for core inflation of around 5 percent in a year.
    But Uganda's economic growth has slowed in the first two quarters of the current 2016/17 financial year, which began July 1, 2016, and the BOU said its projected growth for 2016/17 of 4.5 percent "is unlikely to be achieved."
     In February the BOU cut its growth forecast to 4.5 percent from July's forecast of 5 percent but saw growth in 2017/18 of 5.5 percent.
    Uganda's Gross Domestic Product grew by only 0.8 percent in the fourth quarter of calendar 2016, up from a contraction of 0.1 percent in the third quarter, mainly due to the impact of adverse weather on agriculture output which fell by about 2 percent every quarter for four consecutive quarters.
    Uganda's shilling, which fell sharply in the last quarter of 2016, has been more stable this year, though depreciating slightly.
     The shilling was trading at 3,616.6 to the U.S. dollar today, down 0.4 percent this year.
     The BOU maintained its band of plus/minus 3 percentage points around the CBR rate and the margin on the rediscount rate at 4 percentage points so the rediscount rate was cut to 15 percent and the bank rate to 16 percent, respectively.



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