Bank of Uganda (BoU) has decided to maintain the Central Bank Rate (CBR) at 10 percent with the 12-months ahead inflation forecast improving slightly relative to October 2018.
“The BoU’s Composite Index of Economic Activity (CIEA) indicates stronger economic performance in the first 10 months of 2018, with an annualised growth rate of 7 – 8 percent,” said Prof. Emmanuel Tumusiime-Mutebile, the Governor BoU in a press release dated December 5, 2018.
Adding that, “This is an indication that economic growth in FY2018/19 could be higher than the previous projection of 6 percent.”
He noted that the strong growth was in part supported by the accommodative monetary policy stance and the associated rebound in private sector credit extension, ensuing strong domestic demand conditions, multiplier effects of public infrastructure investments and improved agricultural productivity.
The positive growth performance was expected to be sustained over the coming years, partly driven by public infrastructure investment, added Mutebile.
“The Medium-Term Fiscal Framework indicates that public investment should remain at a high level, which should, in turn, continue to have positive spillover effects on private sector investment activity and spending,” Mutebile said.
Nonetheless, Prof. Tumusiime-Mutebile noted that there were risks to the projected economic growth momentum including the slow execution of public investment projects; unpredictable weather conditions, which could affect agricultural productivity; and the slowdown in global growth and global financial uncertainty, which could affect the external position.
He said that, the growth in the Private Sector Credit, though on a recovery path, remained below its historical trend and its contribution to economic growth could be weighed down by increased public borrowing requirements and the associated further increase in lending interest rates.
“The Consumer Price Index (CPI) data released by the Uganda Bureau of Statistics (UBOS) indicates that inflation remained subdued; with annual headline inflation remaining stable at 3.0 percent in November 2018,” Mutebile said.
He noted further that, “core inflation on the other hand declined marginally to 3.4 percent from 3.5 percent in October 2018.”
The low inflation environment continues to be supported by low food inflation, he added.
However, was quick to add that, the near-term (three to six months) inflation forecasts were lower compared to the October 2018 inflation forecast round, largely driven by a less depreciated exchange rate.
“Core and headline inﬂation are forecast to peak at 6-6.5 percent and 5.1 percent in the second half of 2019, which are lower than the previous forecasts by 1 and 0.7 percentage points, respectively, Prof Mutebile said.
Mutebile made futher emphasis on the medium-term inﬂation outlook remaining relatively unchanged from the previous forecast, with inﬂation forecast to converge to the BoU’s target of 5 percent.
However, he remained upbeat about the upside risks to the outlook including the future direction of food crops prices; the path of the exchange rate, which in part was contingent on external economic environment; and the ensuing demand pressures on account of the positive output gap.
He disclosed that, the BoU’s Monetary Policy Committee (MPC) had assessed the risks and uncertainties surrounding the inflation and growth outlook. Based on the assessment, he said that the MPC decided to maintain the CBR at 10 percent.