BoU holds CBR at 10.0 percent in August

By George Mangula

Uganda’s central bank, the Bank of Uganda (BoU) kept its central bank rate (CBR) at 10.0 percent on Thursday and said an economic expansion had slowed in the first two quarters of this year but higher credit growth and public infrastructure spending supported the outlook.

It is the fifth time in a row that BoU has kept its key lending rate unchanged, even though commercial banks in the country have not aligned their prime lending rates to this rate, despite calls from policy makers to do so to boost absorption of private sector credit at much higher rates.

Inflation was 2.6 percent year-on-year in July, down from 3.4 percent in June, while core inflation was down to 3.5 percent from 4.9 percent in June.

Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said economic growth the year through next June was projected at 6 percent to 6.3 percent, also supported by strong domestic demand and an improved agriculture performance.

He said there were downside risks both on external and domestic fronts such as a depressed global economy and weather related constrains to agricultural production respectively.

“Weather-related constraints to agricultural production and delays in implementation of public investment programmes could dampen economic activity,” he said while addressing journalists at the bank’s headquarters in Kampala.

Major infrastructure investments in Uganda include a crude oil pipeline and domestic refinery, hydropower dams, expressways and construction and expansion of airports.

Tumusiime-Mutebile said annual core inflation was projected to edge up and peak at about 6.5 percent in the fourth quarter of 2020, driven by stronger domestic demand.

The Bank of Uganda’s monetary policy targets a medium-term core inflation rate of 5 percent.

Risks to a favorable growth outlook, he said, could come from low demand for Uganda’s exports “due to a depressed global economy” that could weigh on investment flows and services such as tourism.