Bank of Uganda has kept its key lending rate at 9.5 per cent, with assertions that earlier policy easing actions had improved economic conditions in the country.
The Bank’s Deputy Governor Dr. Louis Kasekende, said inflation remained subdued as it came down to 4 per cent in November, from 4.8 per cent in October. But he said risks might come from higher food prices.
Dr. Kasekende was Monday reading the Monetary Statement for December 2017 in Kampala where he also announced that the Bank had maintained the rediscount rate and the bank rate at 13.5 per cent and 14.5 per cent, respectively.
In October, the central bank cut the rate to 9.5 per cent, lowering it below the psychologically important threshold of 10 per cent for the first time since the bank introduced its inflation-targeting monetary policy in 2011.
He said the economy would expand at 5 per cent in the fiscal year 2017/18, which started in July. He also noted that omestic economic activity continues to strengthen as financial conditions ease and agricultural output returns to normal.
“The Composite Index of Economic Activity, which is the Bank of Uganda’s (BoU) high frequency indicator of economic activity, points to a strengthening of economic activity in the first four months of FY 2017/18,” Dr. Kasekende said.
In the medium term, he said, the economy is expected to expand at a solid pace boosted by public investments, growth in consumption and the current stimulatory monetary policy.
He quoted the revised Gross Domestic Product (GDP) data for FY 2016/17 released by UBOS which indicates that the economy grew at 4.0 per cent, driven by improved performance of the agricultural and services sectors.
He, however, noted several domestic factors that pose risks to the economic outlook.
“Growth has not been even across all sectors. In addition, the cost of credit is high and non-performing loans remain relatively high with a possibility that this will constrain credit extension,” he said.
BOU will read the next Monetary Statement in February 2018.