BoU puts brakes on monetary easing as economy improves

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 Ambrose Byamugisha

Bank of Uganda stayed its policy rate at 10 per cent last Friday, citing improved growth prospects and expectations that inflation will stay within the medium-term target range. Before the decision, arrived at in the bi-monthly monetary policy meeting, the central bank had reduced the rate in each of its past eight meetings going back to April 2016. The last reduction in the central bank rate, in June, was influenced by figures showing a slowdown in economic growth. The Uganda Bureau of Statistics had just released figures showing that the economy’s expansion in 2016/17 was the slowest in four years.

Latest data from the statistics bureau and the central bank’s high frequency indicator of economic activity, however, shows that the economy picked up in the first half of this year, the monetary policy statement released by BoU said. It added: “The revised GDP growth forecasts suggest that it will improve further going forward supported by the current accommodative monetary policy, recovery in external demand and foreign direct investment (FDI), increased activity in the agricultural sector due to improved weather conditions, and the fiscal stimulus outlined in the National Budget for the Financial Year 2017/18.”

Because of these factors, the Bank forecasts that the economy will grow at about 5 per cent to 5.5 per cent in 2017/18. Its medium-term forecasts for inflation also remained unchanged, with both annual headline and core inflation expected to remain in the 5±2 range. Bank of Uganda’s target rate for core inflation is 5 per cent in the medium-term.

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