The central bank has today announced a reduction of lending rate by 0.5% points to now 9.5% confirming the band on CBR will be maintained at +/-3% points and the margin on the rediscount rate at 4% points on the CBR.
Announcing the reduction today at the central bank, governor, Emmanuel Tumusiime Mutebire attributes that reduction to the fact that the annual core inflation is forecast to remain around the medium term target of 5% and the economic activity is slowly gaining momentum adding that a cautious easing of monetary policy is warranted to boost private sector credit growth as well as strengthen the economic growth momentum.
The bank continues to reveal that consumer price index data indicates that inflation remains subdued with headline and core inflation increased marginally to 5.3% and 4.2% in September 2017 from the respective rates of 5.2% and 4.1% in August 2017 with the rise largely driven by the increase in the cost of fuels which pushed up electricity, fuels and utilities inflation to 10.6% in September 2017 from 7.8% in August 2017 with annual food crops inflation however continued to fall, declining to 9.6% in September 2017 from 11.7% in August 2017 largely on account of improved food supply.
Meanwhile, the latest quarterly GDP data released at the end of September 2017 by Uganda Bureau Of Statistics (UBOS) indicates that growth recovery in the second half of 2016/17 adding that quarterly growth rates of only 0.6% and .1% were recorded in the first two quarters of 2016/17, mainly because of bad weather that affected the agricultural sector.
Still growth rate accelerated to 1.8% and 1.9% respectively in the third and fourth quarters of the financial year though growth in the private sector credit remains sluggish with the economy projected to grow at an annual rate of 5.0% to 5.5% in the financial year 2017/18 which according to the experts its lower than the estimates of potential GDP growth.
UBOS further projects economic growth to accelerate to between 6 and 6.5% over the medium term with the outlook supported by accommodative monetary policy coupled with improvement in public investment management and improvement in the global economy.
The central bank now forecasts indicate that inflation outlook remains unchanged since the last monetary committee meeting in August 2017, with annual core inflation forecast to remain within the target range of 5% over the the short to medium term.