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ANALYSIS: Can Bank Of Uganda Cut Key Lending Rate?

Prof. Emmanuel Tumusiime-Mutebile, the Bank of Uganda (BoU) Governor will tomorrow issue the Monetary Policy Statement for the month of February.

BoU stayed the Central Bank Rate (CBR), a benchmark lending rate for commercial banks for  the month of December at 9.5% on account that core inflation is projected to pick-up in 2018/19 to around 5% as spare capacity in the economy is reduced.

In November 2017, Headline and Core Inflation declined to 4.0% and 3.3% from 4.8% and 3.5% in October 2017 respectively.

Tomorrow’s policy meeting comes against a backdrop of very low inflation environment with Core- the closely watched standing at 2.6%.

This scenario creates good headroom for the Central Bank to ease, says Stephen Kaboyo, an analyst and Managing Director at Alpha Capital Partners.

However, he says,  there  are some domestic risks that BOU will have to take into account  emanating from the volatility of the  shilling that was seen in the previous  months and its vulnerability  going forward,  high fuel prices that started picking up at the beginning of the year and the weather conditions that may affect food prices down the road.

Stephen Kaboyo

On the global scene, Kaboyo says, growth has improved, but a couple of uncertainties still linger on and these are the clarity on  US economic policies  and the pace of monetary policy normalization in other major economies.

In the domestic money markets, interest rates at short end of the curve seem to be in a correction mode but remain misaligned. The policy rate is higher than one year Treasury bill rate by slightly over 100 basis points.

“On the growth front, there seems to be no immediate drivers to kick up action and this is another key factor that speaks to an accommodative policy stance,” Kaboyo predicts.

Taddewo William Senyonyi
https://www.facebook.com/senyonyi.taddewo
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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