Thursday, January 3, 2013

Uganda holds rate, inflation in check, growth improving

    Uganda's central bank kept its Central Bank Rate (CBR) steady at 12.0 percent, saying inflationary pressures were under control and economic growth was starting to pick up with a stronger recovery expected later this year as the impact of earlier rate cuts feed through to private expenditure.
    The Bank of Uganda (BOU), which cut rates by 11 percentage points in 2012, said a rise in inflation in December was due to seasonal factors, but "looking ahead, inflation will remain moderate for most of 2013 and stabilise around the BOU medium-term policy target of 5.0 percent."
    Uganda's inflation rate rose to 5.5 percent in December from November's 4.9 percent but the bank said the core rate of 4.6 percent was still within the bank's 5.0 percent target.
    Economic activity in Uganda was starting to improve, the BOU said, with Gross Domestic Product expanding by a quarterly 2.0 percent in the first quarter of fiscal 2012/13 and monetary aggregates were also picking up though private sector credit growth was still subdued, partly on account of the high lending rates on shilling-denominated loans.

    "Given the lag in the monetary policy transmission mechanism, I expect a further reduction in lending rates," the bank quoted the governor, Prof. E. Tumusiime-Mutebile, as saying in a statement.
    The BOU said it considers its current policy stance to be accommodative and supportive of growth as well as anchoring inflation expectations around the bank's target.
    Looking ahead, the BOU was more optimistic than last month when it said that growth prospects had weakened and the negative output gap should persist through the 2012/13 year that ends June 30.
    "A stronger economic growth recovery should start in the later part of 2013 as the accommodative monetary policy stance pursued in 2012 and improvement in credit extensions feed through to private domestic expenditure," the BOU said today, adding:
    "Furthermore, the improving global economic outlook may strengthen domestic economic activity in the near term."

    www.CentralBankNews.info


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