Uganda’s central bank cut its key interest rate for the eighth time this year to stimulate borrowing and spur economic growth as inflation slowed.
The Bank of Uganda lowered the central bank rate to 12.5 percent from 13 percent in October, Governor Emmanuel Tumusiime-Mutebile told reporters today in the capital, Kampala. It raised the rate by 10 percentage points last year to a peak of 23 percent to protect the currency against depreciation and fight inflation that reached 30.5 percent in October 2011.
The central bank will probably prefer to cut the rate “marginally” as it guards “against accelerated decline in the interest rates and provides a little more support for the shilling in the short term,” Stephen Kaboyo, the managing director of Alpha Partners, a Kampala-based research company, said by phone before the decision.
Inflation in the East Africa’s third-biggest economy slowed to 4.5 percent in October from a revised 5.5 percent in September after prices of some food items dropped, the Uganda Bureau of Statistics said yesterday.
The bank had room for a “modest” cut in the rate because of the outlook for inflation, balanced against weak domestic demand and uncertainties in the global economy, Tumusiime-Mutebile said.
“The reduction in inflation has reinforced the Bank of Uganda’s confidence that core inflation will stabilize at around the medium-term target of 5.0 percent through to the middle of next year,” he said. The central bank rate is “now approaching the level consistent with” the inflation outlook, he said.
Economic growth in the 12 months through June slowed to 3.2 percent from 6.7 percent a year earlier after services and the industrial sectors fell, according to the Uganda Bureau of Statistics.
Expansion will probably reach 5.0 percent in fiscal 2012-2013 although that is below the economy’s potential of 6.5 percent to 7 percent a year, Tumusiime-Mutebile said.