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BOU says economy to weather emerging market capital flight

By Vision Reporter

Added 6th February 2014 10:47 AM

The capital flight from emerging and frontier markets sparked by the United States starting to withdraw its stimulus measures is unlikely to have a severe impact on the Ugandan economy, the east African country's central bank chief said on Wednesday.

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NAIVASHA - The capital flight from emerging and frontier markets sparked by the United States starting to withdraw its stimulus measures is unlikely to have a severe impact on the Ugandan economy, the east African country's central bank chief said on Wednesday.

Sentiment towards emerging markets has been fragile since the U.S. Federal Reserve announced it will cut back its stimulus programme, with many investors betting the dollar will continue to gain against emerging and frontier market currencies.

Governor Emmanuel Tumusiime-Mutebile said "there will be fewer off-shore investors in the foreign exchange market" in the wake of the Fed's tapering programme but added that many foreigners will continue to invest in the rest of Uganda's economy, one of east Africa's fastest growing.

"Don't forget that the rate of return from these investments is far higher in Uganda than in the United States but the same is not true of money," Tumusiime-Mutebile told Reuters on the sidelines of mobile money conference in Kenya.

"Those who are coming to invest in short-term money markets will go, yes".

The Ugandan central bank held its benchmark lending rate at 11.5 percent earlier this week but some banking analysts said the low rate of credit supply in the economy could lead to rate cuts in the near to medium term.

Tumusiime-Mutebile said this was not necessarily the case.

"Actually, lending in dollars is doing very well but lending in local shillings is not doing well. So on balance the economy is not affected," he said.

Reuters

BOU says economy to weather emerging market capital flight

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