Tuesday, September 6, 2011

Bank of Uganda Hikes Rate 200bps to 16.00%

The Bank of Uganda increased its new monetary policy interest rate (the central bank rate [CBR]) by 200 basis points to 16.00% from 14.00% previously.  The BoU will also widen the ban around the CBR to 400bps (keeping 7-day interbank rates within that band), and set the September Rediscount Rate at 21% and the Bank Rate at 22%.  Bank of Uganda Deputy Governor, Louis Kasekende, said: "BoU is raising interest rates in order to curb the growth in bank credit, which has expanded rapidly over the last 12 months, to encourage higher levels of saving and to provide more support to the exchange rate." and further added that "If the inflation outlook deteriorates in the next few months, the BoU will implement further increases in the CBR."

Previously the Ugandan central bank increased its interest rate by 100bps to 14.00% at its August meeting, after setting the new central bank rate at 13.00% at its June meeting.  The Bank only recently began using the 7-day interbank rate to influence inflation, also commencing official targeting inflation; the Bank previously announced an inflation target of 7%, and noted it has a 5% core inflation target in today's press release.  Uganda reported annual headline inflation of 21.4% in August, up from 18.8% in July, 18.7% in June this year, 16% in May, and 14.1% in April, while core inflation was 20% in August.  The government of Uganda is forecasting 6.6% GDP growth for the current fiscal year.


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