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Benchmark Central Bank Rate to remain neutral

By Samuel Sanya

Added 3rd October 2017 07:20 AM

The benchmark Central Bank Rate was reduced to 10% in June to signal a general reduction in commercial lending rates to spur private sector activity and consumption of goods and services.

Benchmark Central Bank Rate to remain neutral

The benchmark Central Bank Rate was reduced to 10% in June to signal a general reduction in commercial lending rates to spur private sector activity and consumption of goods and services.

The benchmark Central Bank Rate (CBR) is likely to remain at 10% for the months of October and November, due to a slight rise in inflation in September and a decline in consumer and business sentiment, according to Alpha Capital Partners chief Stephen Kaboyo.
 
Bank of Uganda Governor Emmanuel Tumusiime Mutebile will today hold a press conference to issue a Monetary Policy Statement after Uganda's annual headline inflation for the year ending September 2017, increased from 5.2% to 5.3% in the year ended August 2017 (Uganda Bureau of Statistics).

The benchmark Central Bank Rate was reduced to 10% in June to signal a general reduction in commercial lending rates to spur private sector activity and consumption of goods and services.
 
"The inflation readings for the previous month showed a slight edge up in both headline and core. It is likely BOU could view this as transient and not focus too much on it," Kaboyo said.
 
"On the face of current realities, whereby the economy has experienced a deterioration of consumer and business sentiment, with growth contraction, the monetary authorities will be faced with the challenge of balancing the two objectives.

"In my view, the growth challenge will take precedence in the policy discussions," he explained.

Earlier on, PricewaterhouseCoopers Uganda, a global accounting firm, tipped Uganda's economy to grow by a faster 5% this financial year, driven mainly by strong performances in the industry and services sectors, and public infrastructure investment.

"Rising private consumption and a recovery in private sector credit growth should result in an increase in domestic consumption, which will spur growth of the economy," PwC says in its Uganda Economic outlook 2017 report for the months of July to September.

PwC applauded BOU for cautiously pursuing an expansionary monetary policy throughout the financial year 2016/17 through reductions in the benchmark Central Bank Rate.

"This reduction in the CBR rate has gradually fed through to commercial bank interest rates, although at a relatively slow pace. The weighted average lending rate on shilling denominated loans has fallen from the peak of 25% in February 2016 to an average of 20% as of today," the report said.

It, however, notes that despite the monetary policy easing, growth in private sector credit has remained subdued due to supply-side constraints to credit growth.

 

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