For the fourth consecutive time this year, Bank of Uganda (BOU) has reduced the Central Bank Rate (BOU), as it looks to stimulate demand in the economy. In the Monetary Policy Statement issued today, Prof. Emmanuel Tumusiime Mutebile, the BOU Governor, revealed that the CBR would be reduced from 14 percent to 13 percent; a factor that is expected to contribute to domestic economic growth.
“Given that core inflation is the forecast to remain around the medium term target of 5 percent over the next 12 months, there is room to support the domestic economic growth momentum especially against the ongoing global economic slowdown. Therefore, the BOU believes that there is scope to ease monetary policy,” Mutebile said in a statement at the release of the October 2016 Monetary Policy Statement.
The expectation is that commercial banks will also react going forward to further slash their lending rates. However, there is always a lag effect in the fall of interest rates in commercial banks, so borrowers may take about a month to reap the benefits of the BOU reduction.
The CBR rate cut was also informed by better prospects within the economy, especially inflation, which remains within the BOU target. Notably, BOU is also concerned that there is still a risk to inflation rising and it will “…primarily, depend on the exchange rate movements as well as the impact of less than normal rains for the current season.”