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Bank of Uganda cuts key policy rate to 11pc

Wednesday April 12 2017
Kampala-Traders

Traders in Kampala. According to Bank of Uganda the country's GDP growth target of 4.5 per cent for the 2016/17 financial year is unlikely to be achieved due to depressed economic activity. PHOTO|FIlE

Uganda’s central bank cut its key policy rate by 0.5 per cent to 11 per cent Wednesday. The decision is linked to concerns about depressed economic activity, signs of rebound posted by credit flows and a fairly stable inflation outlook. 

Weak government spending, severe drought, low Foreign Direct Investment flows particularly in the oil and gas sector and the economic slowdown experienced in major regional export markets including South Sudan and the Democratic Republic of Congo have weighed down on the country’s growth outlook this financial year.  

Uganda’s economy grew by 4.8 per cent in the 2015/16 financial year against a target of five per cent, amid spillover effects of the general elections held in February 2016 and episodes of foreign investor capital flight. 

Weak economic growth in the first two quarters of 2016/17 has seen Bank of Uganda (BoU) hint at a lower growth outcome.

“…Given the weak economic performance in the first quarters of the current financial year, the projected GDP growth of 4.5 per cent in 2016/17 is unlikely to be achieved…” reads the latest monetary policy statement. 

Credit growth on the other hand has recovered from -0.1 per cent and -0.8 per cent registered in September 2016 and February 2017 to 7.5 per cent last month, a sign of recovery in credit disbursements made by commercial banks and gains tied to previous policy rate cuts. 

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Core inflation is forecast to remain close to the medium term target of five per cent, a development attributed to the impact of the ongoing rains in different parts of the country and the first harvest season of the year scheduled for June, executive director for research at BOU, Dr Adam Mugume said.

 

 

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