Uganda cuts rate to boost fragile growth as virus rises

    Uganda's central bank cut its benchmark interest rate for the fourth time in the current monetary easing cycle, saying the economic recovery still requires monetary policy support and inflation will likely remain below the target in the near term with little space for fiscal policy to respond to "fragile economic growth."
    The Bank of Uganda (BOU) cut its central bank rate (CBR) by 50 basis points to 6.50 percent and has now cut the rate by a total of 3.50 percentage points since October 2019 when it began easing its policy stance in response to decelerating inflation and slowing global economic growth.

     In response to the COVID-19 pandemic, the central bank cut its rate twice in 2020 - in April and June - and while the rate has been maintained for the last 12 months, BOU in February this year extended its credit relief measures and liquidity assistance to financial institutions as the economic recovery had lost momentum due to a surge in infection rates.

     In its previous statement from April, the bank's monetary policy committee said there were still enough uncertainties and risks to the economy to warrant keeping the accommodative policy stance and since then Uganda has experienced a rise in COVID-19 cases and a shortage of vaccines and oxygen.

     The World Health Organization (WHO) last week warned of a third wave of the pandemic across Africa, with eight countries, including Uganda, seeing more than a 30 percent jump in cases in a week.

     "The MPC (monetary policy committee) assessed that the risks to the economic growth outlook are still on the downside, there remains considerable excess capacity in the economy, sectoral unevenness of economic recovery, and a weak level of business investment," BOU said.

     Although economic developments have been broadly in line with the central bank's outlook in April - growth in the 2020/21 financial year is projected to be 3.3 percent, above initial projections of 3.1 percent and up from a 1.1 percent contraction last year - private sector investment is still contracting and domestic demand could still be dented by the emerging COVID-19 wave.

      But BOU still expects the economic recovery to strengthen as vaccines are rolled out amid improving global growth and left its forecast for gross domestic product growth in the 2021/22 fiscal year, which begins July 1, unchanged at 4.0-4.5 percent.

      As several other African countries, including Zambia, Uganda is facing pressure from an estimated 35 percent rise in public debt last year to about 50 percent of GDP due to from tax revenue shortfalls and the cost of measures to combat the virus.

      Earlier this month staff from the International Monetary Fund (IMF) reached agreement with the country's authorities on a $1 billion package to help tackle the financing needs in coming years.

      Inflation in Uganda has been decelerating this year and after reweighing the consumer price index basket inflation fell to 1.9 percent in May from 2.1 percent.

      BOU expects inflation to remain below its 5.0 percent target in the near term as excess capacity continues to put downward pressure on prices, but is forecast to stabilize around the target by the end of 2022.

      On April 1 Uganda's parliament reappointed the bank's governor, Emmanuel Tumusiime-Mutebile, for another five-year term. Having initially been appointed in 2001, Mutebile, 71, is one of the longest-serving central bank governors in the world.

     www.CentralBankNews.info

     

      

Uganda holds rate, extends credit, liquidity measures

     Uganda's central bank left its key interest rate unchanged for the fourth time but extended credit relief measures and liquidity assistance to financial institutions as the economic recovery has lost momentum since mid-December due to a surge in COVID-19 infection rates.
    The Bank of Uganda (BOU) kept its Central Bank Rate (CBR) at 7.0 percent, unchanged since June 2020 when it cut it for the second time in 2020 to cushion the hit to the economy from the pandemic.
     Since October 2019, when BOU began easing its monetary policy stance, CBR has been cut 300 basis points, including 200 points last year.

     "Given the inflation outlook and the heightened uncertainties surrounding the economic growth path, the MPC (monetary policy committee) decided to maintain the current policy stance until the economy normalizes sustainably," the central bank said.

     BOU's high frequency indicators of economic activity indicate growth of about 2.6 percent in the quarter to December, down from growth of 9.2 percent in the quarter to September.

     "Nonetheless, economic indicators still suggest some recovery from the sharp contractions of 6 percent and 2.2 percent in the quarters to June 2020 and September 2020, respectively," BOU said.

     BOU maintained its forecast for growth in the current 2020/21 financial year, which ends June 30, of 3.0-3.5 percent, and forecast growth would accelerate to 4.0-4.5 percent in 2021/22 and 6.0-7.0 percent in following years.

     "The medium-term economic outlook continues to be highly conditional on the timeline of the world-wide vaccines rollout and the course of the virus and its new variants," BOU said, noting most of its exports go to Eastern and Southern Africa (COMESA) where the vaccine rollout is likely to be sluggish.

    "Thus, whereas advanced economies are expecting a rapid vaccine-fueled recovery, the damaging effects of the pandemic could persist in the region, which could be detrimental to domestic economic growth prospects in the medium to long-term," the bank said.

     While BOU still expects the output gap to close in FY2023/24, it said the adverse impact of the pandemic on potential growth could be more profound if it turns out to be longer or harsher than assumed.

      On the upside, economic activity could be stronger than projected if the COVID-19 scarring effects become more limited in scope, adding a faster rollout of mass vaccines globally could allow for a quicker unwinding of social distancing measures and result in a more robust increase in economic activity.

     Inflation in Uganda remains benign - it rose to 3.7 percent in January from 3.6 percent in December - and BOU expects inflation to return to its 5.0 percent target as excess capacity is absorbed.

     BOU said it would extend for six months from April 1 the Credit Relief Measures (CRM) and the Covid-19 Liquidity Assistance Program (CLAP) to supervised financial institutions and review CLAP as the pandemic evolves to ensure financial institutions that come under liquidity stress remain solvent so they can support credit extension.

     www.CentralBankNews.info

     

Uganda holds rate, growth below potential till 2023/24

     Uganda's central bank kept its key interest rate steady for the third time as it trimmed its forecast for inflation this year due to the extent of the spare capacity in the economy at the same time the recovery from the pandemic gradually gains traction and risks to the near-term economic outlook ease.

     The Bank of Uganda (BoU) left its Central Bank Rate (CBR) at 7.0 percent as in August and October after cutting it by 200 basis points in April and June. 

     Since BOU began easing its policy in October 2019, the rate has been cut 3 percentage points.

     High frequency economic indicators in the three months to October indicate annual growth of 3.3 percent in sharp contrast to a contraction of 6 percent in the second quarter but BoU said this was in line with its projection for economic growth in fiscal 2020/21, which began July 1, of over 3 percent.

     "However, the recovery is proceeding at an uneven pace," BoU said, adding social distancing measures continue to weigh on hospitality and tourism and economic activity is expected to take longer to recovery and resource utilization will take longer to return to normal.

     "Economic growth is therefore projected to remain below its potential until FY2023/24," BoU said, adding there is a need for monetary policy to remain accommodative until the economy normalizes as inflation is projected to be well contained in the medium term.

     In October BoU forecast Uganda's economy would contract between 0.2 and 0.5 percent in calendar year 2020 while growth in fiscal 20/21 was projected at 2.0 to 2.0-3.0 percent, rising to 5.0-6.0 percent in 2021/22 and 6-7 percent in later years.

     In 2019 Uganda's economy grew 5.6 percent, largely driven by an expansion of the services sector, construction and mining. 

      But the COVID-19 pandemic hit economic activity hard, along with the invasion of locusts and flooding, and earlier this month the World Bank forecast gross domestic product growth of 0.4 to 1.7 percent as exports, tourism, remittances and foreign direct investment shrunk.

     "The medium-term outlook is also not favorable for Uganda," the World Bank said, adding heightened uncertainty around the upcoming February 2021 elections further exacerbate risks.

     Although BoU said the news about a vaccine "is reassuring and presents positive prospects," it revised downwards its forecast for inflation from October due to the considerable spare capacity in the economy.

     Inflation is now projected in a range of 5.0 to 6.5 percent in 2020 before converging to its medium-term target of 5 percent.

     In October BoU said there was a near-term upside to inflation and saw core inflation remaining above 5 percent before gradually returning to 5 percent in 2022.

     Uganda's headline inflation rate dropped to 3.7 percent in November from 4.5 percent in October but core inflation only eased to 5.8 percent from 6.3 percent.

     After falling sharply in March and then rebounding in the following months, Uganda's shilling has risen since the start of November and rose further today. 

     The shilling was trading at 3,668.6 to the U.S. dollar today, up 6 percent since a low on March 25 but still down 0.4 percent since the start of this year.

     www.CentralBankNews.info

Uganda maintains rate as risks of inflation now to upside

     Uganda's central bank left its benchmark interest rate steady after three cuts, saying the risks of inflation rising above its target are now to the upside despite economic growth being below its potential level.

      The Bank of Uganda (BOU) kept its Central Bank Rate (CBR) at 7.0 percent after cutting it by 200 basis points this year following cuts in April and June. Since it began easing in October 2019, the rate has been cut 300 points.

      BOU's monetary policy committee also kept the discount rate at 10 percent and the bank rate at 11 percent, adding it remains committing to providing liquidity support to supervised financial institutions (SFIs).

      The central bank emphasized its primary mandate is to keep inflation around its medium-term target of 5.0 percent while the current outlook is characterized by "extreme uncertainty," contingent upon the intensity, spread and duration of the COVID-19 pandemic.

     "In these conditions, supporting the recovery of the economy is overriding in the conduct of monetary policy provided inflation remains in the range of 5 percentage points," BOU said.

     Uganda's headline inflation rate rose to 4.7 percent in July from 4.1 percent in June while core inflation rose to 5.8 percent from 4.9 percent, topping the bank's target.

      Over the next 12 months, the path for consumer price inflation will largely reflect the influence of containment measures and higher prices of imported consumer goods due to taxes to support import substitution.

      Core inflation is expected to peak at 6.1 percent in the first quarter of 2021 while headline inflation could peak at 6.2 percent, BOU said, adding risks to the inflation outlook include a higher fiscal deficit, and more depreciated exchange rate.

      But domestic demand could also take longer to recover, and food prices and external sources of inflation are likely to remain weak amid the global economic downturn.

      After growth slowed in the first quarter of this year to annual growth of 1.8 percent from 6.7 percent in the previous quarter, BOU estimated the economy contracted by 3.2 percent in the second quarter due to a combination of containment measures and floods.

     "As the easing of the lockdown continues, the economy is expected to slowly recovery, reflecting the effects of a slow rebound in both foreign and domestic demand and, subdued confidence on the part of households and firms," BOU said.

      Many consumers are also expected to remain hesitant to resume their previous spending patterns, partly due to fears of contracting the virus and uncertainty about earnings while low exports and subdued tourism will continue to weigh on economic growth.

     BOU forecast growth in the 2020/21 financial year, which began July 1, in a range of 3.0 to 4.0 percent and then 5.0 to 6.0 percent in 2021/22, remaining below potential until 2022/23.

This week in monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico & Peru

    This week - August 9 through August 15 - central banks from 8 countries or jurisdictions are scheduled to decide on monetary policy: New Zealand, Rwanda, Belarus, Serbia, Uganda, Egypt, Mexico and Peru.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 33
AUG 9 - AUG 15, 2020:
NEW ZEALAND	12-Aug	0.25%	0	-75	1.00%	DM
RWANDA	12-Aug	4.50%	-50	-50	5.00%
BELARUS	12-Aug	7.75%	-25	-125	9.50%
SERBIA	13-Aug	1.25%	0	-100	2.50%	FM
UGANDA	13-Aug	7.00%	-100	-200	10.00%
EGYPT	13-Aug	9.25%	0	-300	14.25%	EM
MEXICO	13-Aug	5.00%	-50	-225	8.00%	EM
PERU	13-Aug	0.25%	0	-200	2.50%	EM

 

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Uganda cuts rate 3rd time as growth forecast lowered

     Uganda's central bank cut its benchmark interest rate for the third time in the current easing cycle, and for the second time this year, against a backdrop of declining inflation and another downward revision of its growth forecast this year.
     The Bank of Uganda (BOU) cut its Central Bank Rate (CBR) by another 100 basis points to 7.0 percent and has now cut it by 200 basis points this year following a cut in April, and by 300 points since it began monetary easing in October last year.
     "Although Uganda is gradually easing the lockdown measures instituted to contain the spread of the pandemic, the adverse consequences of the global and domestic supply chain disruptions could persist through the remaining part of 2020," BOU said.
     The second quarter of this year will see the most severe economic slowdown before a gradual recovery is expected to set in during the third and fourth quarters of this year, BOU said, adding household spending, investment, exports and imports are seen declining this year.
     BOU revised downward its growth forecast for Uganda to a range of 2.5 to 3.5 percent from April's forecast of 3.0 to 4.0 percent, with the strength of the recovery depending on how the country opens up for economic activity safely.
     In February BOU had expected growth this year of 5.5 to 6.0 percent.
     In 2021 economic growth is seen recovering further with growth of 4 to 5 percent and then between 6 and 6.5 percent in 2022.
     But the combination of the COVID-19 pandemic, extreme weather, and volatility in global financial markets could weigh on Uganda's balance of payments, potentially destabilizing the foreign exchange market and dampening economic growth, BOU cautioned.
     As many other currencies, Uganda saw its shilling tumble in March as global financial markets began to react to the spread of the coronavirus. The shilling fell 6.2 percent to a new record low of 3919.7 to the U.S. dollar on March 25 from Feb. 1.
     But since then the shilling has risen and was trading at 3,769.3 to the dollar today, down 2.6 percent this year.
     With economic growth slowing, inflation has remained subdued, with headline inflation easing to 2.8 percent in May from 3.2 percent in April.
     BOU forecast inflation will remain below its 5.0 percent target in the next 12 months despite a temporary rise in transport costs in months ahead due to the global economic slowdown and low food crop inflation.
     Risks to inflation from a depreciation of the shilling is seen contained as the pass-through from a depreciation are expected to remain low due to subdued demand, BOU said.
     Last week the executive board of the International Monetary Fund approved some US$491.5 million under its rapid credit facility to Uganda to help finance the health, social protection and macroeconomic stabilization measures along with meet the country's "urgent" balance of payments and fiscal needs from the pandemic.

    www.CentralBankNews.info
   
   
   

Uganda cuts rate another 100 bps, to buy treasury bonds

    Uganda's central bank lowered its benchmark interest rate for the second time in the current easing cycle and launched other monetary easing measures, including the purchase of government bonds, to ensure adequate access to credit and a normal functioning of financial markets during what it described as a "severe contraction" in economic activity from the COVID-19 pandemic.
     The Bank of Uganda (BOU) cut its Central Bank Rate (CBR) by 100 basis points to 8.0 percent and has now cut it by 200 basis points since October 2019. It is BOU's first rate cut this year.
     With global supply chains disrupted, which affects manufacturing, travel restrictions, social distancing measures, and a decline in demand, BOU forecast the country's economy would slow "drastically" in the second half of the current 2019/20 financial year, with growth for the year of 3 to 4 percent.
      In October, when BOU also cut its rate by 100 basis points, the central bank was already reacting to slowing economic growth, which was pulling down its inflation forecasts, from earlier forecasts of 6.0 to 6.3 percent growth for 2019/20, which began on July 1, last year.
     In February BOU still expected growth this year of 5.5 to 6.0 percent despite uncertainty around the severity of the coronavirus outbreak.
    "Downside risks to economic growth outlook have increased, particularly in the near term and economic activity is projected to remain subdued until the pandemic is contained globally," BOU said.
     Although there is still uncertainty over the duration of the slowdown, BOU said it expects growth to gradually recover in the second half of the 2020/21 year but the output gap to persist until 2022.
    Headline and core inflation in Uganda eased to 3.0 in March and 2.5 percent, respectively, and BOU expects core inflation to remain below its historical average in the 12 months ahead with "feeble" domestic demand lead to disinflationary pressures in the economy even as the prices of some imported items may rise due to supply chain disruptions.
    Inflation is now seen in the range of 2 to 3 percent this year on the assumption the pandemic is contained by June and the economy recovers gradually in the second half of the year.
    BOU targets inflation of 5.0 percent.
    In addition to the rate cut, BOU directed financial institutions to defer payments of dividends and bonuses for at least 90 days as of March to ensure adequate capital buffers, will provide exceptional liquidity assistance to commercial banks that are facing liquidity distress for up to one year, provide liquidity to banks for a longer period by issuing reverse repos for up to 60 days, with an opportunity to roll this over.
    BOU will also purchase treasury bonds held by institutions providing micro finance and credit institutions to ease any liquidity stress and those institutions that don't hold treasury bills or bonds will be provided with liquidity secured by other holdings.
     Financial institutions will also be permitted to restructure corporate or individual loans, including a moratorium on loan repayments for borrowers that have been affected by the pandemic for up to 12 months as of April 1, BOU said.

Uganda cuts rate 100 bps, slashes inflation outlook

    Uganda's central bank lowered its Central Bank Rate (CBR) by 100 basis points to 9.0 percent, saying it believes "the benign inflation outlook provides room for a reduction in the policy rate to support economic growth."
     It is Bank of Uganda's (BOU) first rate change since it raised the rate by the same amount in October 2018, returning its key rate to the level it was between February 2018 and October that year.
     BOU lowered its inflation forecast sharply.
     "The economy continues to grow but at a slowing rate," BOU said, noting gross domestic product slowed in the first half of 2019 from the second half of 2018 and the Composite Index of Economic Activity (CIEA) points to moderation of economic activity in the first quarter of the current 2019/20 financial year, which began July 1.
     Uganda's GDP eased to annual growth of 5.4 percent in the second calendar quarter from 5.6 percent in the first quarter and in August BOU Governor Emmanuel Tumusiime-Mutebile had forecast growth in 2019/20 of 6.0 to 6.3 percent.
     "The outlook is uncertain, particularly as a result of the unfavorable global economy," BOU said, adding a combination of widening fiscal and current account deficits could exert pressure on lending interest rates, leading to a further decline in economic growth.
    Inflation in Uganda has been decelerating in the last three months and headline inflation fell to 1.9 percent in September from 2.1 percent in August, partly driven by a stronger shilling, moderating domestic demand and lower food prices.
     Core inflation fell to 2.5 percent in September from 4.9 percent in June.
     BOU lowered its forecast for core inflation to remain below its 5.0 percent target until the fourth quarter of 2020, with the risks to the downside and inflation forecast to converge to the target in the medium term, or over 2-3 years as demand side pressures remain subdued and the exchange rate is expected to remain relatively stable.
      The revision to BOU's inflation forecast follows Tumusiime-Mutebile's forecast in August that core inflation would edge up and peak in the in the fourth quarter of 2020 at about 6.5 percent.

Uganda keeps rate steady, inflation seen close to target

     Uganda's central bank left its Central Bank Rate (CBR) unchanged at 10.0 percent, saying inflation has developed in line with its forecast and conditions for inflation to remain close to its target of 5.0 percent in next 2 to 3 years have not changed to any great extent.
     The Bank of Uganda (BOU), which had kept its rate steady since a 100 basis point rate hike in October last year, also said the country's economy was operating around its potential growth level of 6.0-6.5 percent although economic activity seems to be softening and downside risks to growth have risen, mainly those risks that revolve around unresolved trade tensions that are affecting global and domestic trade and investment activities.
      Headline inflation in Uganda was steady at 3.0 percent in March and February while core inflation rose to 4.6 percent from 3.7 percent in the same period.
     Although the outlook is unchanged compared with the February round of forecasts, BOU said medium-term inflation is slightly higher than earlier expected, with headline inflation and core inflation forecast to peak at 6.3 percent and 6.4 percent, respectively, in the third quarter of 2021.
      In February BOU forecast headline and core inflation would peak at 5.5 percent and 5.3 percent in the first quarter of 2020.
      Uganda's economy has been in an upturn since early 2017 and in financial year 2017/18, which ended July 1, 2018, the economy expanded by 6.1 percent and in February BOU forecast 6.3 percent growth in the current 2018/19 year, and remain on a steady growth trajectory in coming years.
      In the third calendar quarter of 2018, gross domestic product was up 6.8 percent year-on-year, up from 5.2 percent in the second quarter.
     Uganda's shilling has slowly appreciated since mid-2018 and was trading at 3,715 to the U.S. dollar today, marginally up from the start of the year.

     www.CentralBankNews.info

     

This week in monetary policy: Ghana, Uganda, Australia, Romania, Poland and India

    This week - March 31 through April 6 - central banks from 6 countries or jurisdictions are scheduled to decide on monetary policy: Ghana, Uganda, Australia, Romania, Poland and India.
    Uganda's central bank had originally scheduled the policy decision for April 4 but said earlier this week the April monetary policy statement will be released at a press conference on April 1.
    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

    The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 14
MAR 31 - APR 6, 2019:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
GHANA	1-Apr	16.00%	-100	-100	18.00%
UGANDA	1-Apr	10.00%	0	0	9.00%
AUSTRALIA	2-Apr	1.50%	0	0	1.50%
ROMANIA	2-Apr	2.50%	0	0	2.25%
POLAND	3-Apr	1.50%	0	0	1.50%
INDIA	4-Apr	6.25%	-25	-25	6.00%

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UPDATED-This week in monetary policy: Australia, Thailand, Iceland, Poland, Belarus, Moldova, Brazil, Philippines, India, Uganda, Serbia, Czech Rep., Romania, UK, Mexico, Peru & Russia

    (Following item updated with the Bank of Uganda monetary policy statement for February on Feb. 7)

     This week - February 3 through February 9 - central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Australia, Thailand, Iceland, Poland, Belarus, Moldova, Brazil, Philippines, India, Uganda, Serbia, Czech Republic, Romania, United Kingdom, Mexico, Peru and Russia.

     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.

     The table is updated when the latest decisions are announced and can always accessed by clicking on This Week.

WEEK 6
FEB 3 - FEB 9, 2019:
COUNTRY	DATE	RATE	LATEST	YTD	1 YR AGO
AUSTRALIA	5-Feb	1.50%	0	0	1.50%
THAILAND	6-Feb	1.50%	0	0	1.50%
ICELAND	6-Feb	4.50%	0	0	4.25%
POLAND	6-Feb	1.50%	0	0	1.50%
BELARUS	6-Feb	10.00%	0	0	10.50%
MOLDOVA	6-Feb	6.50%	0	0	6.50%
BRAZIL	6-Feb	6.50%	0	0	6.75%
PHILIPPINES	7-Feb	4.75%	0	0	3.00%
INDIA	7-Feb	6.50%	0	0	6.50%
UGANDA	7-Feb	10.00%	0	0	9.00%
SERBIA	7-Feb	3.00%	0	0	3.50%
CZECH REP.	7-Feb	1.75%	0	0	0.75%
ROMANIA	7-Feb	2.50%	0	0	2.25%
UNITED KINGDOM	7-Feb	0.75%	0	0	0.50%
MEXICO	7-Feb	8.25%	25	0	7.50%
PERU	7-Feb	2.75%	0	0	3.00%
RUSSIA	8-Feb	7.75%	25	0	7.75%

Uganda keeps rate steady on improved inflation outlook

      Uganda's central bank kept its Central Bank Rate (CBR) at 10.0 percent, saying the outlook for inflation has improved slightly though risks to the outlook remain elevated.
      The Bank of Uganda (BoU), which raised its rate by 100 basis points in October in what it described as a "modest" tightening of monetary policy, added that economic activity is projected to continue to expand, supported by accommodative monetary policy, with growth in the 2018/19 financial year, which began July 1, above the previous projection of 6.0 percent.
      Uganda's economy grew an annual 7-8 percent in the first 10 months of this year, according to the central bank's index of economic activity, with growth in coming years helped by a rebound in private sector credit, public infrastructure investment and improved agricultural productivity.
      "The Medium-Term Fiscal Framework indicates that public investment should remain at a high level, which should, in turn, continue to have positive spill over effects on private sector investment activity and spending," BoU said.
      Inflation in Uganda is subdued, with headline inflation of 3.0 percent in October and November, and BoU said it expects core and headline inflation to peak at 6.0 - 6.5 percent and 5.1 percent in the second half of 2019, down from a previous forecast by 1.0 and 0.7 percentage points, respectively.
      In the medium-term, the BoU expects inflation to converge to its target of 5.0 percent, adding that upside risks to this outlook stems from food crop prices, the exchange rate and demand pressures from the positive output gap.
      Uganda's shilling, which fell sharply in May and June, has been rising in the last two months and was trading at 3,733 to the U.S. dollar today, down 2.7 percent this year.

     www.CentralBankNews.info

Uganda raises rate 100 bps on growing inflation pressure

     Uganda's raised its Central Bank Rate (CBR) by 100 basis points to 10.0 percent as inflationary pressures are now higher than expected due to rapidly rising oil prices, a weaker exchange rate of the shilling and an array of indirect taxes on mobile money transactions and voice and messaging services over the internet.
     The Bank of Uganda (BOU), which had cut its rate in February by 50 basis points to boost economic growth, said a "modest" tightening of monetary policy was warranted to keep inflation close to its 5.0 percent target.
     Uganda's inflation rate eased slightly to 3.7 percent in September from 3.8 percent in August due to lower food prices but BOU noted core inflation had jumped to 3.9 percent in September from 0.8 percent in June due to higher services prices.
     Services prices have risen in response to the Over-The-Top (OTT) tax, a 200 shilling daily tax on voice and messaging services by such providers as Facebook, WhatsApp, Twitter and Instagram. The tax on social media from July 1 was imposed to curb gossip among its users. Earlier the government passed a 1 percent excise duty on mobile money transactions.
      "Higher fuel prices and strong domestic demand could push services inflation higher in the remaining part of 2018," BOU said.
      The central bank raised its forecast for core inflation to peak in the range of 6.5 to 7.5 percent in the second half of 2019 unless it cut the rate now. In the first half of 2020 core inflation is expected to ease and stabilize around 5 percent, with the positive output gap expected to the key inflation driver.
      Economic activity in Uganda has been solid since the second half of last year, with the BOU's composite index of economic activity suggesting economic growth in the current 2018/19 fiscal year, which began July 1, of about 6.5 percent.
      Uganda's economy expanded by 6.4 percent year-on-year in the first calendar quarter of 2018, unchanged from the previous quarter.
      A key risk to the inflation outlook stems from the exchange rate, which remains vulnerable to tighter global financial conditions and stronger domestic demand. Food prices are not seen as a major risks but remain dependent on weather and therefore uncertain.
      The shilling has been depreciating steadily since early 2017 and fell sharply in June before bouncing back. Today the shilling was trading at 3,815 to the U.S. dollar, down 4.8 percent this year.

     www.CentralBankNews.info

   

Uganda holds rate but sees rising inflation, strong growth

     Uganda's central bank kept its benchmark Central Bank Rate (CBR) at 9.0 percent, saying a neutral monetary policy stance is warranted in order to keep inflation close to target and maintain sustainable economic growth.
      The Bank of Uganda (BOU) forecast that core inflation will continue to rise and peak around 6 -7 percent in the second half of the current 2018/19 financial year before stabilizing around its medium-term target of 5 percent by the end of 2019.
      The BOU, which has maintained its key rate since February this year, after a 2-year easing cycle, also cautioned about a rise in inflation in its June policy statement but attributed this to stemmed a recovery in food prices, the expected closure of the output gap and higher taxes.
       Food prices, however, are no longer seen as a major risk to the inflation outlook and are projected to remain low though this can quickly change depending on weather conditions.
       The BOU today said that higher oil prices and a depreciation of the shilling's exchange rate could result in higher inflation.
       In July headline inflation rose to 3.1 percent from 2.2 percent while core inflation jumped to 2.5 percent from 0.8 percent on a combination of higher oil prices, shilling depreciation and a one-off rise in communications taxes, and fuel excise taxes
     "A key risk to the inflation outlook is the shilling exchange rate which remains vulnerable to domestic market conditions and the possibility of tighter global financial conditions," BOU said.
     The shilling fell from March to late June when BOU on June 27 sold U.S. dollar for the third time that month after the shilling hit a new all-time record low of around 3,900 to the dollar.
      "The heightened depreciation pressures experienced during the last quarter of FY 2017/18 were in part driven by speculate activity in the foreign exchange market, which resulted in the exchange rate overshooting its long-run equilibrium," BOU said, adding its reserves remain adequate to maintain stability in the currency market.
      The shilling recovered during July but fell 2.2 percent today to 3,749 following the BOU's decision and general dollar strength on heightened fears around Turkey. This year the shilling is down 3 percent against the dollar.
      Uganda's economy is continuing to strengthen, BOU said, estimating Gross Domestic Product growth for 2017/18, which began July 1, of 5.8 percent compared with 3.9 percent in 2016/17.
      In 2018/19 the economy is forecast to strengthen further to 6 percent and then average growth of about 6.3 percent in the medium term, supported by public infrastructure investments, improving agricultural productivity, a recovery in foreign direct investment and strengthening private sector credit growth due to past monetary policy easing.
       BOU said weighted average lending rate fell to 17.7 percent in June from 25.2 percent in February 2016 when it began easing policy. Between April 2016 and February 2018 the BOU cut CBR by a total of 800 basis points.

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Uganda maintains rate although inflation risks to upside

     Uganda's central bank left its Central Bank Rate (CBR) at 9.0 percent but said the risks to its inflation forecast had moved to the upside from rising import prices, a recovery of food prices, a closing of the negative output gap and a planned increase in taxes.
      Although inflation is now projected to rise faster than previously projected, the Bank of Uganda (BOU) still forecasts that inflation will return to close to its its medium-term target of 5 percent during the 2018/19 financial year, which begins on July 1.
      "The downward trend in inflation experienced during the course of FY 2017/18 will gradually be reversed, with import prices rising reflecting a combination of a gradual increase in global inflation and the weakening of the shilling," BOU said.
      Inflation is also expected to rise due to an expected recovery of food prices, the closure of the output gap and a planned increase in taxes on fuel pump prices and financial service during 2018/19.
      In its previous monetary policy statement from April, the BOU estimated that risks to inflation were balanced and inflation was projected to converge to its 5 percent target by end-2019, with the pressures from improving demand not seen posing significant risks to inflation.
      The BOU has kept its CBR rate steady since February this year when it cut it by 50 basis points as it continued an easing cycle that began in April 2016. Since April 2016 the key rate has been cut by 800 basis points.
      Uganda's inflation rate remains subdued with inflation down to 1.7 percent in May from 1.8 percent although food crops inflation rose to minus 0.2 percent from minus 2.1 percent.
      Economic activity is continuing to strengthen with the statistics office forecasting growth of 5.8 percent in 2017/18, up from 3.9 percent in 2016/17 as growth improves across all sectors.
      For 2018/19 growth is expected to strengthen further to 6.0 percent, BOU said.
      Downside risks to the economy stem from a depreciation of the shilling and higher oil prices.
      Over the last three months the shilling has come under pressure from a global strengthening of the  U.S. dollar and a weakening of the current account from higher imports.
      In 2017/18 the current account deficit is seen rising to 5.3 percent of Gross Domestic Product, up from 3.4 percent in 2016/17.
       Uganda's shilling has been depreciating since March and last week the BOU was seen selling dollars to support the shilling on strong demand from manufacturers, fuel importers and banks.
      The shilling was trading at 3,832 to the dollar today, down 5.2 percent this year.

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Uganda cuts rate another 50 bps to strengthen growth

      Uganda's central bank cut its Central Bank Rate (CBR) by 50 basis points to 9.00 percent, saying "a cautious easing of monetary policy is warranted to further boost private sector credit growth and to strengthen the economic growth momentum" given the spare capacity in the economy and the objective of keeping inflation close to the target.
       The rate cut is a continuation of the Bank of Uganda's (BOU) easing campaign that began in April 2016 as it slowly unwinds 600 points of rate hikes in 2015.
       It is BOU's first rate cut this year after cuts totaling 250 basis points in 2017 - most recently in October 2017 - and by 500 points in 2016. Since April 2016 the CBR rate has been lowered by a total of 800 points.
       Uganda's headline inflation rate declined to 3.0 percent in January from 3.3 percent in December and while the near-term forecast is similar to that from December, the BOU said the 12-month forecast had been lowered by around 1 percentage point, mainly due to lower food prices.
       Core inflation eased to 2.6 percent in January from 3.0 percent in December.
       By the second half of 2019, headline and core inflation is now seen converging to 5 percent as the economy strengthens though spare capacity will help dampen inflationary pressures. The BOU targets core inflation of 5.0 percent, plus/minus 2 percentage points.
       Uganda's economy is projected to have grown between 5.0 and 6.0 percent in 2017, up from 2.5 percent in 2016, and the BOU forecasts growth in the 2017/18 financial year, which ends June 30, of 5.0-5.5 percent.
      This growth forecast is slightly up from BOU's December forecast of 5.0 percent but similar to its forecast from October 2017 when it also forecast 5.0-5.5 percent.
       The BOU noted signs of a revival of private investment activity as reflected by a recovery of foreign direct investment, improved shilling credit extension and an increase in the imports of raw materials and capital goods.
        "Over the next five years, economic growth is projected to average 6.3 percent, boosted by public investments, increasing growth in consumption and improved agricultural productivity," BOU said.
      After falling sharply in 2014 and 2015, Uganda's shilling depreciated further in 2016 and 2017 but at a slower pace. 
       Today the shilling was trading at  3,632 to the U.S. dollar, largely unchanged from 3,634 at the start of 2018.

Uganda maintains rate on subdued outlook for inflation

      Uganda's central bank left its Central Bank Rate (CBR) at 9.5 percent, saying the near-term outlook for inflation remains subdued while economic growth is expected to expand at a solid pace, boosted by public investments, growth in consumption and monetary stimulus.
     The Bank of Uganda (BOU) has cut its rate by 250 basis points this year - most recently in October - following cuts of 500 points last year as the central bank unwinds rate hikes totaling 600 points in 2015 in response to more stable and declining inflation.
       The BOU said its current monetary policy stance was appropriate "based on the outlook for inflation and economic activity, together with an expansionary fiscal policy in FY 2017/18; and the evolution of the risks and uncertainties."
      Uganda's headline inflation rate dropped to 4.0 percent in November from 4.8 percent in October and 7.2 percent in May as food prices fell. Core inflation eased to 3.3 percent in November from 3.5 percent in October, helped a stable exchange rate in the last year.
      BOU said the near-term outlook for inflation remains subdued but core inflation is expected to pick up in the 2018/19 financial year to around 5 percent as spare capacity is reduced.
      The BOU targets core inflation of 5.0 percent, plus/minus 2 percentage points.
      Uganda's economy has been improving this year after bad weather hit agriculture last year. Revised data for 2016/17, which ended June 30, showed growth of 4.0 percent, down from 4.7 percent in 2015/16.
       For the current 2017/18 financial year, the BOU forecast growth of 5.0 percent, with indicators of economic activity pointing to stronger growth in the first four months of the current financial year. In October the BOU forecast 2017/18 growth of 5.0 to 5.5 percent, with growth then seen accelerating to 6.0 to 6.5 percent in the medium term.
      In the second calendar quarter, Uganda's Gross Domestic Product grew by an annual rate of 5.5 percent, up form 4.6 percent in the first quarter.

       Last month the International Monetary Fund forecast 2017/18 growth of 5 percent, supported by better weather conditions, while private sector credit remains muted.

       The IMF also described BOU's rate cut in October as appropriate but noted with concern a rise in poverty headcount to 27 percent of the population.
      In the second calendar quarter, Uganda's Gross Domestic Product grew by an annual rate of 5.5 percent, up form 4.6 percent in the first quarter.
      After falling sharply in 2014 and 2015, Uganda's shilling depreciated further last year but at a slower pace. This year the shilling has remained more stable and was trading at 3,617 to the U.S. dollar today, down 0.4 percent this year.
      The stock of reserves as of Dec. 11 was US$3.47 billion, enough to pay for 5.2 months of imports, and the BOU expects the exchange rate to remain stable in the short run.

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