The Bank of Uganda (BoU) on Monday reduced its Central Bank Rate (CBR), a benchmark lending rate for commercial banks to 10% for the Month of June, down from 11% in April, 2017.
Announcing the move at BoU headquarters in Kampala, BoU Governor, Prof. Emmanuel Tumusiime Mutebile attributed the reduction to subdued inflationary pressures and weak growth prospects.
Mutebile said that the annual headline inflation increased to 7.2% in May, 2017, up from 6.8% in April 2017. This was largely driven by sharp increase in food crops and higher energy prices. The annual core inflation remained relatively increasingly only marginally to 5.1% in May, up from 4.9% in April. This was largely due to relative stability of the exchange rate and subdued domestic demand.
The continued easing of the CBR by BoU since April last year is expected to result into a reduction in interest rates charged by commercial banks.
The bank has this year been lowering the rate to ease cost of credit and boost economic growth. The CBR was 12% from Dec, 2016 up to February 2017 before it was lowered to 11.5% in February and then to 11% in April. 2017.
Mutebile added that the economy has continued to grow at moderate pace, with the economy expected to grow at 3.9% in 2016/17, according to latest figures from Uganda Bureau of Statistics compared to a gross rate of 4.7% in 2015/16.
He however said economic growth is projected to pick up to 5.0% in 2017/18 supported by “improved efficiency and effectiveness in public investments, higher foreign direct investments particularly in the oil sector, and the recovery in private sector credit growth as lending interest rates continue declining.”
