The Bank of Uganda has reduced the central bank rate for September by 200 percentage points to 15% down from 17% in August to influence the reduction in commercial bank lending rates and spur economic growth.

While addressing journalists at the bank’s head offices in Kampala on September 4 Central Bank Governor, Emmanuel Tumusiime Mutebile said the continued reduction in inflationary pressures has influenced the bank’s decision to cut its policy interest rate.

Headline inflation declined to 11.9% from 14.3% in August and July respectively thanks to a sharp reduction in food prices and marginal reductions in other components of inflation.

“We expect annual core inflation to fall to single digits by the end of September 2012 and then gradually flatten out at around 5% in the first half of 2013,” Mutebile said.

He added that inflation has declined due to the food price shocks which afflicted the economy in 2011 which he said have abated somewhat. He added that the weakening of domestic demand pressures [with the economy operating below potential] and the stability in the nominal exchange rate since the start of the second quarter of 2011/12 have contributed to the reduction in inflation.

Mutebile said he expects commercial banks to cut their lending rates since the cost of funding is reduced in line with the reduction in the CBR. “If they don’t reduce then they will see my….I should keep quiet,” he sounded.

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