Bank of Uganda (BoU) has reduced the Central Bank Rate (CBR) to 11.5 percent in February 2017 from 12 percent in December 2016. This is according to a Monetary Policy Statement issued today to the press by Professor Emmanuel Tumusiime-Mutebile
on Wednesday.

Mutebile said the economic growth forecast for the fiscal year from last July had been lowered to 4.5 percent from a previous forecast of 5 percent.

Some inflationary pressures attributed to higher oil prices are expected in the short term, but headline inflation was expected to remain within the medium-term target of 5 percent, the bank said.

“The economic prospects are more optimistic for FY 2017/18, with GDP expected to grow at 5.5 percent, driven by improved public infrastructure investment, a recovery in private sector investment and improvements in agricultural production and consumption. Global conditions remain uncertain though tentatively improving. Bank of Uganda, therefore expects the impact of negative external shocks on the economy to be softened going forward”, Mutebile says.

He continued to say that Bank of Uganda judges that a further cautious easing of monetary policy is warranted to support economic activity. The easing will also be consistent with achieving the annual core inflation target of 5 percent over the medium term. Therefore, the BoU will reduce the CBR by 0.5 percentage points to 11.5 percent. The band on the CBR will be maintained at +/-3 percentage points and the margin on the rediscount rate at 4 percentage points on the CBR. Consequently, the rediscount rate and the bank rate have been reduced to 15.5 percent and 16.5 percent, respectively.

Stephen Kaboyo, of fund manager Alpha Capital Partners said the rate cut appeared to reflect policymakers’ view that “risks to a further downside to the real economy is more immediate than the risks to the side of inflation.”

Inflation climbed to 5.9 percent last month from 5.7 percent in December, driven by a surge in some food prices.

Uganda is suffering from a drought across East Africa that has sent prices of staple foods soaring to record or near-record levels and could lead to food shortages in some areas, the U.N. Food and Agriculture Organization (FAO) said on Tuesday