For the fourth time this year, the Bank of Uganda has reduced the Central Bank Rate (CBR), with latest reduction from 14% to 13%, aimed at stimulating demand in the economy, announced today.
Releasing the Monetary Policy Statement for October 2016, Central Bank Governor Prof. Emmanuel Tumusiime Mutebile said the reduction of CBR would also spur domestic economic growth.
The move is also expected to make commercial banks slash their lending rates, (now standing at over 20 per cent), and Prof Mutebile also said the BOU is concerned that there is still a risk to inflation rising due to the exchange rate movements.
“Given that core inflation is forecast to remain around the medium term target of 5 percent over the next 12 months, there is room to support the domestic economic growth momentum especially against the ongoing global economic slowdown. Therefore, the BOU believes that there is scope to ease monetary policy,” Prof. Mutebile said in the statement.
According to the statement, the impact of less than normal rains in the current season has frustrated the Ugandan agricultural economy leading to drought in some areas like Soroti in Eastern Uganda. It has also affected the Karamoja region, a predominantly semi-desert area that has been infested by tsetse fly.
Neighboring Kenya has also had a fair share of the drought, while the influx of South Sudan refugees fleeing war in their country has worsened inflation, the BOU says.
Following the February 2016 general elections the country experienced near crunch due to the liquidity in the election period.
“For some reason, most Ugandans are still in that economic crunch, a reason why some parents failed to complete school fees for their children in candidate classes and they are being advised to wait till next year if the school authorities insist on not letting the students have exams with pending fees payments,” a parent lamented.
Indeed, even the most popular and perhaps the only locally-owned commercial bank, Crane Bank, is also experiencing financial constraints, he added.