By Julius Businge
The Bank of Uganda has reduced the central bank rate (CBR) to 12.5% in November from 13% in October with the aim to influence cuts in commercial bank lending rates and boost economic growth, central bank governor Emmanuel Tumusiime Mutebile told reporters in Kampala on Nov. 1.
The marginal reduction comes at a time when the country’s year-on-year inflation is declining-a factor that might influence further monetary policy easing.
The CBR was highest at the end of last year-23% but the bank embarked on reducing it as the rate of inflation declined.
The annual headline and core inflation declined to 4.5% and 4.0% respectively from 5.5% and 4.9% in September 2012.
“The reductions in inflation have re-enforced the BoU’s confidence that core inflation will stabilise at around the medium term target of 5.0% through to the middle of next year,” Mutebile said.
The East Africa’s third largest economy was hit by high inflationary pressures mid-last year before it started to abate due to improved food harvests and the appreciation of the shilling against foreign currencies.
The country’s headline inflation touched 30.4% in October last year, the highest since 1993. As a result, economic growth slowed to 3.2% for FY 2011/12 from the highs of over 6%, a year earlier.
Mutebile said the continued monetary policy easing was intended to boost aggregate demand in order to boost real economic activity without jeopardising the medium term inflation objective.