BoU Governor Emmanuel Tumisiime-Mutebile

Bank of Uganda (BoU) maintained its central bank rate (CBR) at 10 per cent on Wednesday saying the outlook for inflation had improved.

The BoU Governor Emmanuel Tumusiime-Mutebile said in Kampala while issuing the Monetary Policy Statement to the press. BoU raised the CBR for the first time in three years in October, citing concerns about rising inflationary pressures.

Core inflation, which the bank tracks, came down to 3.4 per cent last month from 3.5 per cent the previous month. The rate was expected to peak at between 6-6.5 per cent in the second half of next year, lower than the previous forecast, the governor said.

Domestic economic activity was projected to remain on a steady expansion path in financial year 2018/19 and over the coming years, keeping output slightly above the potential.

The BoU’s Composite Indicator of Economic Activity (CIEA) shows the first 10 months of 2018 had an annualised growth rate of 7-8 per cent, meaning the economic growth in 2018/19 could be higher than the previous projection of 6 per cent.

Tumusiime-Mutebile said the strong growth is in part supported by the accommodative monetary policy stance and rebound in private sector credit extension, ensuing domestic demand conditions, multiplier effects of public infrastructure investment and improvement in agricultural productivity.

“The medium-term Fiscal Framework indicates that public investment should remain at a high level, which should, in turn, continue to have positive spillover effects on private sector investment and spending,” said Tumusiime Mutebile.

Nonetheless, he warned that there were risks to the projected economic growth momentum which includes; slow execution of public investment projects, unpredictable weather conditions which affect agricultural productivity and the slowdown in global growth and global financial uncertainty, which could affect Uganda’s external position.

The governor further said private sector credit, though on a recovery path, is below historical trend and its contribution to economic growth could be weighed down by increased public borrowing and the further increase in prime lending rates.