Central Bank Rate held at 11.5%

By Samuel Sanya

The benchmark Central Bank Rate (CBR) has been held at 11.5% in January for a second straight month due to a potential rise in inflation in coming months.

Central Bank data indicates that exports to South Sudan have dropped by as much as $40m (sh101b) on a monthly basis, but despite this, the economy is expected to grow between 6% and 6.5%.

“The potential rise in inflation and its timing will depend largely on movements in the exchange rate, changes in commodity prices and the degree to which momentum in economic activity spills into broader cost and price pressures,” said Emmanuel Mutebile, the governor Bank of Uganda (BOU).

Earlier, analysts in the financial markets had anticipated a reduction in the CBR following a decline in headline inflation to 6.7% from 6.8% and decline in core inflation to 5.7% from 7% in December.

Quarterly GDP figures show that the economic growth for the first quarter of the financial year 2013/14 declined by 0.6% due to drought, but the start of the seasonal rains and the impending harvest season are expected to boost growth.

Recovery in agricultural production and public investment in infrastructure are expected to enhance the competitiveness of Uganda’s economy in the East African region and to drive economic growth to new highs.

Uganda’s economy grew by 5.8% last financial year 2012/13, up from 3.2% the year before. “Private consumption and investment activity is expected to rise as consumer and household credit extension gradually gain momentum following the declines in commercial bank lending rates,” Mutebile said.

South Sudan conflict affects exports

Exports to South Sudan have dropped to between $10m and $15m month-on-month, down from $50m, creating a loss in revenue of between $40m (sh101b) and $35 (sh89b). Uganda exports goods worth $200m every month, more than half the amount is derived from export partners within the region such as South Sudan, Rwanda, Kenya, DR Congo, Central African Republic and Tanzania.

“The full impact of the conflict in South Sudan on the Ugandan economy will depend on how long the conflict lasts. If it goes on for three to five years, our economy might slow down by 0.5%,” said Adam Mugume, the BOU executive director Research. The conflict has gone on for about three weeks now.