Uganda Central Bank Cuts Rate to 16 Percent as Prices Fall

  • Central bank says demand pressures on inflation more subdued
  • Inflation rate seen in 5.5%-7.5% range in the first half

Uganda’s central bank cut its benchmark rate for the first time in almost two years as falling consumer prices and a stable currency provided room for looser policy.

The Bank of Uganda reduced its key rate to 16 percent on Monday from 17 percent, the first cut since May 2014, after raising borrowing costs by six percentage points last year to support the shilling. The currency depreciated by nearly 18 percent in 2015.

“Given that the inflation outlook has improved and to ensure that real economic growth remains close to potential, the BOU believes that it is warranted to cautiously ease monetary policy,” Governor Emmanuel Tumusiime-Mutebile told reporters in the capital, Kampala.

While the economy had continued to grow at a moderate pace, activity was lower in the first quarter of 2016 compared to the previous three months, he said. Annual consumer inflation slowed to 6.2 percent in March, after peaking at 8.5 percent in December, according to the nation’s statistics office.

The bank forecasts that both headline and core inflation will remain within a 5.5 percent to 7.5 percent target corridor in the first half of this year and fall toward its 5 percent target in the first quarter of 2017.

The central bank reduced its rediscount rate and the bank rate by 100 basis points each to 20 percent and 21 percent respectively.

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