Central Bank 'likely keep CBR unchanged'

Jun 13, 2016

"There are a number of considerations that BOU will probably take into account such as the unwinding base effects."

Following the increase in inflation to 5.4% in May from 5.1% in April 2016, experts are optimistic that Bank of Uganda (BoU) will most likely keep the Central Bank Rate (CBR) policy unchanged during its monetary policy meeting on Monday.

The increase in May inflation was attributed to an increase in annual core inflation from 6.4% to 7.0% and a rise in annual services such as healthcare, education, insurance, financial and legal services.

This is above BoU's medium target to control core inflation at 5%.

Bank of Uganda (BoU) has been tightening the Central Bank Rate (CBR) - the interest rate at which it lends to commercial banks for onward lending.

For instance, the CBR was increased from 11% in March 2015 to 12% in April, before increasing it further to 13% in June, 14.5% in July, 16% in August and 17% for October.

In April 2016, the Central Bank reduced its CBR to 16% to curb a surge in inflation to also dampen growth in private sector credit.

"There are a number of considerations that BOU will probably take into account such as the unwinding base effects which are likely to keep upward pressure on inflation in the month of June," Stephen Kaboyo, a market and financial analyst said.

He anticipates that the Central Bank would prefer to gain very good visibility following the budget release on the issue of government spending going into a new fiscal year.

External factors such as the trend of international oil prices since the beginning of the year will also be a consideration, added Kaboyo.

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