By Julius Businge
This is the second straight month the Central Bank of Uganda is staying its policy interest rate, the central bank rate (CBR) unchanged at 12%, Governor Emmanuel Tumusiime Mutebile told a news conference in Kampala on Nov. 4.
The policy rate stood at 11% in August before it was increased to 12% when headline inflation threatened to go up.
Mutebile’s rate decision was based on core inflation that is projected to decline to the Bank of Uganda’s target of 5% in the medium term. The Governor said that real economic growth is now close to the economy’s long-term potential of 6-7% growth.
We believe that a neutral monetary policy stance should be warranted, Mutebile said, adding therefore the CBR will be maintained at 12% in November.
The national statistics office announced at the end of October that annual inflationary pressures abated slightly in October 2013, with annual headline and core inflation declining to 8.1% and 7.2% respectively from 8.4% and 7.4% in September 2013.
The Central Bank Rate directs the movement in commercial bank lending rates in the market. Once increased, commercial bank lending rates at most times do the same and the reverse is true.
Mutebile said average bank lending rates for shilling-denominated loans declined to 22.5% in September 2013 from 23.1% in the previous month, a reduction that should support further growth in bank lending.