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BoU eases central bank rate to 12%

By Julius Businge

The central bank of Uganda has marginally reduced the central bank rate to 12% in December down from 12.5% in November, in a bid to boost economic growth.

The country’s economy grew at 3.2% in the year 2010/2011 down from 6.7% in 2009/2010, partly because of the tight monetary policy implemented by the central bank, which aimed at fighting inflation that hit the highs of 30.4% in October last year.

Central Bank governor Emmanuel Tumusiime Mutebile told reporters on Dec. 4 in Kampala, that inflationary pressures are currently subdued and are likely to remain so in the near term because of negative output gap.

“The Bank of Uganda’s forecast for core inflation is that it will stabilise at around 5% over the next 12 months,” Mutebile said, adding the bank will continue to focus on stimulating aggregate demand in order to boost real economic growth without jeopardizing the medium term inflation target of 5%.

The Uganda Bureau of Statistics announced on Nov. 30 that annual headline inflation had marginally increased to 4.9% in November from 4.5%, a month earlier. The marginal increase was driven by food crops and energy, fuel and utilities (EFU) inflation which rose to 7.5% and 13.8% compared to 4.4% and 12.8% respectively during the previous month.

Mutebile described his monetary policy for the last 12 months as “very successful” because it had battled inflation from over 30% in October last year to just 4.9% in November.

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