By Our Reporter
Bank of Uganda (BOU) has increased the Central Bank Rate (CBR) by 1.5 percentage points to 16%. This according to the Governor Emmanuel Mutebile is as a result of rise in core inflation from 4.9% in June 2015 to 5.4% in July. The increase in consumer goods prices cut across all subcomponents of the consumer price index (CPI). The momentum of price increases remained high for services and other goods category reflecting the impact of exchange rate depreciation.
“Indicators of economic activity point to a relatively strong real Gross Domestic Product (GDP) growth in 2015, supported by public investments, faster growth in private sector borrowing and a recovery in the agricultural sector. However, commodity prices have continued to falter and this continues to be a source of uncertainty on export growth. In addition, the risks coming from the global economic situation continue to adversely affect macroeconomic developments in Uganda,” he said.
Mutebile explained there are several risks around the inflation outlook. These include the future path of the exchange rate, which will in part be influenced by external developments and the speed with which the recent depreciation feeds through to higher inflation.
“BOU’s conditional inflation forecast reflects elevated risks to inflation. In light of the risks to higher inflation referred to above, we believe a tighter monetary policy stance is warranted to forestall risks of higher inflation to ensure that annual core inflation remains in single digits and converges towards the BOU’s policy target of 5% in the medium term,” he added.
This move will have an effect on Commercial Bank Lending rates currently at between 20% and 23%.
