BoU retains Central Borrowing Rate at 9%

BoU has maintained Central Borrowing Rate (CBR) at 9%. This was revealed during the Governor's press briefing on the BoU Monetary Policy Statement release for December 2019.

According to BoU, the inflation outlook remains unchanged from October 2019 forecast round. Accordingly, Annual core inflation is projected to remain below the 5% target until the fourth quarter 2020.

However, the risks in the near future term are assessed to be largely on the upside. Due to unpredictable weather patterns, food price inflation also remains uncertain.

Accordingly, a further upside risk to the inflation outlook is capital flow volatility like workers remittances abroad which could put pressure on the exchange" said BoU's Dr. Adam Mugume.

"On the downside, demand pressures remain subdued. Nonetheless, inflation is forecast to converge to the target of 5% in the midterm 2-3 years."

Against this backdrop, the BoU Governor, Emmanuel Mutebile said the CBR has been kept at 9%. The band on the CBR he said will remain at plus or minus 3 percentage points and the margin on the rediscount and bank rate will remain at 4 and 5 percentage points on the CBR, respectively.

Consequently, the rediscount and bank rate remain at 13 and 14 percent respectively. Therefore, the stance at the current level of CBR shows monetary policy remains accommodative and supportive of the economic activity.

Accordingly, the Central Bank holds that the MPC will continue to assess the balance of risks to domestic growth and inflation, to ensure that monetary policy decisions remain consistency with price stability while being supportive of sustained non-inflationary economic growth over the medium term.

The BoU's high frequency indicator of economic activity, the composite Index of Economic activity (CIEA), points to a moderation of economic activity since the beginning of 2019.

According to Bank of Uganda, the moderation of domestic economic growth has been driven by both slowing global activity and domestic factors.

In the first 10 months of 2019, tourism receipts are expected to have grown at a lower rate and merchandise exports, excluding Gold and re-exports, contracted reflecting moderating external demand.

On the domestic scene, BoU holds that moderation of domestic demand conditions could have contributed to the slowing economic activity.

Going forward, a combination of persistent global geo-political tensions and uncertainties around trade policies and softening domestic private sector investment spending could generate headwinds to economic growth.

In addition, public sector financing needs have risen amidst fiscal space, raising the prospect of further on the domestic borrowing costs.

Bank of Uganda projects over all economic growth to be in the range of 5.5-6.0 percent in 2019 and the space sustained into 2020. "This projection remains subject to the downside risks mainly stemming from uncertainties in the global economy. This percentage rate is very respectable", Deputy Governor of BoU Louise Kasekende said.

However, over the long term, monetary and fiscal push is expected to support stronger economic growth resulting to increment in the private sector investment thus providing additional support to the economic growth outlook.

The Consumer Price Index (CPI) data for November 2019 released by UBOS indicates that inflation remained subdued. However, annual headline and core inflation rose to 3 and 2.9 percent respectively from 2.5 and 2.6 percent in October 2019.

The increase in Inflation was in part driven by higher food crop prices, and energy, fuel and utilities prices. Food crop inflation increased from minus 0.9 percent in October 2019 to o percent in November 2019, while Energy, Fuel and Utilities inflation rose to 7.4 percent in November 2019 from 5.1 Percent in October 2019.

Nevertheless, a relatively stronger and subdued domestic demand Bank of Uganda says contributed to moderation of the increase in inflation.