By Silvia Nyambura
Bank of Uganda (BOU) has today reduced the Central Bank Rate (CBR) for April by 0.5% to 11%. According to Governor Emmanuel Mutebile, this is because core inflation is forecast to remain around the medium-term target of 5%. In addition, easing the monetary policy will support private sector credit and economic growth momentum.
Addressing journalists at BOU headquarters in Kampala today, Mutebile said, “BOU’s forecasts indicate that the near-term inflation outlook has improved since the last Monetary Policy Committee meeting in February. This is mainly due to a relatively stable exchange rate. This has offset some of the negative price impact of the supply side shock. The revised forecasts indicate that core inflation will be around 5% in 12 months’ time.”
The Consumer Price Index (CPI) data for March 2017 indicates that inflationary pressures eased slightly. Annual headline and core inflation declined to 6.4% and 4.8% respectively from 6.7% and 5.7% in February 2017. The stability of the shilling exchange rate and subdued domestic demand have contributed to the dampening of inflationary pressures. Annual food crops inflation has however continued to rise, increasing to 20.7% in March 2017 from 18.8% in February, as a result of the drought that affected food production in many parts of the country.
Additionally, Uganda Bureau of Statistics (UBOS) data released last month indicate the economy grew by 0.8% in the quarter to December 2016 compared to a contraction of 0.1% in the quarter to September 2016. This was mostly boosted by the service sector.
“However, given the weak economic performance in the first two quarters of the financial year, the projected GDP growth of 4.5% in 2016/17 is unlikely to be achieved,” Mutebile added.
He explained the anticipated lower growth is largely driven by supply side factors, notably the impact of adverse weather conditions on agricultural output.
“The agricultural sector contracted on average by about 2% quarter on quarter for four consecutive quarters to the second quarter of 2016/17. Output should however revert to trend once the supply shock has dissipated. On the external side, the current account has improved because of stronger export proceeds and workers remittances, coupled with weak import growth,” he concluded.
Nyambura is a senior journalist based in Kampala