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Cut in Central Bank rate likely – financial advisor

By Samuel Sanya

Added 13th June 2017 04:10 PM

The Central Bank has consistently cut its benchmark rate since April 2016, dropping the rate from 17% to 11%.

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The Central Bank has consistently cut its benchmark rate since April 2016, dropping the rate from 17% to 11%.

Bank of Uganda is likely to drop the benchmark Central Bank Rate (CBR) by 50 % basis points to 10.5% in order to spur economic activity at the next announcement, a financial advisor has said.

In a statement, Stephen Kaboyo, a former Central Banker and Alpha Capital Partners boss said: “Slowing growth will be at the center of the discussions. With the balance of risks to growth not improving so much, the easing mode is likely to continue.”

The Central Bank has consistently cut its benchmark rate since April 2016, dropping the rate from 17% to 11%. Despite the Central Banks actions, credit to the private sector sunk to negative 2% in the months of August, September and October before recovering to 6.4% year on year.

Views on the budget

Kaboyo noted that government has unveiled a tough financial year 2017/18 national budget and is faced with having to contain and manage government spending on one hand and a narrow revenue base on the other.

The budget also comes at a time when there are other challenges, such as; low growth, low aggregate demand in the economy, weak external sector, gradual depreciation of the Uganda shilling, and upward pressure on interest rates that threaten to undermine the macroeconomic stability.

Kaboyo said: “This budget is formulated against a difficult local and global background with significant downside risks. The positive thing is that the trend of front end loading of infrastructure continues to be a major focus.”

“The difficult task I see is placing the country's public finances on a sustainable path in an environment of economic uncertainty, growing social spending demands, and continuation of public infrastructure investments and evaluating government spending commitments to sustainable levels,” he added.
 
About 50% of the sh29 trillion national budget will be funded from external sources, while the rest will the footed by the local domestic banking system. Kaboyo noted that the domestic borrowing is “a large portion”.


“Execution is critical because that determines the growth we can quickly reap from the investments made today. The hard work and the challenge I see is fast tracking the procurement and implementation of these projects as we continue to have very low absorption capacity,” he said.


“I would expect government to develop a framework that will facilitate quick turnaround of these projects,” he added. Uganda’s economy is projected to grow by 3.9%, slower than the earlier anticipated 5% due to the drought that hit the agriculture sector in the early part of 2017.

 

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