BoU holds key lending rate at 10 percent, sees faster GDP growth in 2019/20

By George Mangula

Uganda’s central bank –The Bank of Uganda (BoU), held its key lending rate or the central bank rate (CBR) at 10 percent on Tuesday and predicated faster economic growth for the financial year 2019/20.

BoU Governor Emmanuel Tumusiime-Mutebile said the bank had held the CBR at 10.0 percent, the fourth time it kept the rate unchanged.

He projected the economy to expand 6.3 percent in 2019/20 (July-June), compared with 6.1 percent in financial year 2018/19.

“Indicators of real economic activity and business and consumer confidence indicate favourable economic growth prospects in the near term,” said Tumusiime-Mutebile while reading the monetary policy statement for the month of June in at the ban’s head offices in Kampala.

Tumusiime-Mutebile said escalating global trade tensions, local unfavourable weather and delays in infrastructure projects could dampen economic activity. The risks were recently mentioned by the finance ministry, saying they would affect the performance of the Shs40.4 trillion budget read on June 13, 2019.

Headline inflation was 3.3 percent in May from 3.5 percent the previous month while annual core inflation, which the central bank tracks for monetary policy purposes, declined 4.6 percent in May from 4.8 percent a month earlier.

Razia Khan Managing Director, Chief Economist, Africa and Middle East, Standard Chartered Bank while commenting on the CBR said: Although Bank of Uganda has kept its CBR on hold at 10%, its forecast for core inflation (seen peaking at 6.4 percent in Q1 2021), and Uganda’s robust growth backdrop (a preliminary estimate of 6.1 percent from UBOS for FY 19, supported by household consumption), suggests that future risks are likely to be tilted towards further tightening.”

He said that with inflation still well-behaved, the Ugandan shilling relatively stable, there is little pressure on the BoU to alter its monetary policy stance, for now.