News Column

BoU Expected to Maintain Key Rate

June 3, 2014

Alon Mwesigwa



Bank of Uganda will today announce its Central Bank Rate (CBR) for June, with experts predicting it may remain at 11.5 per cent for the seventh month in a row. The CBR is a principal rate that influences interest rates in the country. Stephen Kaboyo, the managing director at Alpha Capital, said he saw little reason for BOU to change policy with the reading of the national budget less than two weeks away.

"Forecasts continue to indicate slow but steady growth and inflation close to its [BOU] target," Kaboyo said.

BOU bases its policy rate on the short term and medium term assessment of the available risks. If it establishes that there are no significant risks, it is likely to reduce the CBR to stimulate growth. A perception of huge risks can see the central bank tighten its stance to control inflation and mitigate the risks.

Core Inflation, which measures the change in prices of goods and services minus food crops and utilities, dropped to 3.3 per cent for the year ending May 2014 compared to the 3.4 per cent recorded in April. This is below BOU's medium term target of 5 per cent. Annual headline inflation, a measure of the general change in prices of goods and services, dropped to 5.4 per cent for May 2014 from 6.7 per cent in April. Uganda bureau of statistics attributes the fall to the decrease in the price of some food crops due to good harvests.

"The driver was a decrease in prices of matooke, irish potatoes, cassava, pineapples, oranges, mangoes, avocado, sweet bananas, green vegetables, fish, milk and sugar in most centres. This is mainly attributed to increased supplies of these items to the market," said a statement from Ubos.

Kaboyo argues that from the inflation perspective, things look good for BOU as moderate inflation appears to have taken hold. For the bigger part of this financial year, bank credit to the private sector has been lower than BOU's projection partly due to higher interest rates in market. Banks have also been cautious over whom they lent to; many banks have been hurt by the spread of bad loans.

This year, the economy is expected to grow at 5.7 per cent, slightly lower than the projected 6 per cent.


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Source: AllAfrica


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