Bank of Uganda has today given the Monetary Policy Statement for August 2016 indicating Inflation continued on a downward trend that began at the end of December 2015.
The statement indicates that the annual headline and core inflation declined to 5.1% and 5.6%, respectively in July 2016 from 5.9% and 6.8% in June 2016.
Although real output declined in the third quarter of FY (FY) 2015/2016, the Bank of Uganda’s high frequency measure of economic activity for July 2016, indicates a recovery in the fourth quarter of the Financial Year.
Governor Bank of Uganda Emmanuel Tumusiime Mutebire also announced that annual core inflation is now expected to converge to the medium term target of 5% slightly faster than was anticipated during the last Monetary Policy committee meeting.
Today marks the 100th Monetary Policy Committee meeting since the BOU adopted Inflation Targeting Lite in 2011.
Mutebire also announced that both annual headline and core inflation are now forecast to decline to around 5% by end 2016.
“Uncertainty over international developments has increased which could affect the exchange rate. Given that inflation is forecast to stabilize around the policy target of 5% over the next 6 months, the Bank of Uganda believes that a continued easing of monetary policy is warranted.”
According to the governor, this will also help to support a recovery of private sector credit and hence support real economic growth.
“Accordingly, the BoU will reduce the CBR by 1% point to 14%, the band on the CBR will be maintained at +/-3% points and the margin on the rediscount rate at 4% points on the CBR” Mutebire announced.
Consequently, the Rediscount rate and the Bank rate have been reduced to 18% and 19%, respectively. But he explained that being a free market economy, Bank of Uganda cannot pressurize banks to reduce interest rates.
He however said; “we hope that with the lowering of CBR, banks will look at the signals and lower interest rates.”
Asked about the bailout of city tycoons, Mutebire said "I have not seen a clear proposal for bailouts’; government does not have the money to bailout these companies."