BoU Slashes Key Lending Rate to 13%

information pills page geneva;”>Governor BOU, patient Prof. Emmanuel Tumusiime-Mutebile said the annual headline and core inflation fell sharply to 5.4% and 4.8% respectively in September from 11.9 % and 11.4% in August.

sale geneva;”>“The monthly headline and core inflation rates averaged 0.1% and 0.2%over the last three months and the Abatement of inflationary pressures in the economy over the last nine months reflects weak domestic demand pressures,” said Mutebile.

BOU expects the annual core inflation to stabilize at around 5% in the last quarter of 2012 and to remain at approximately that level in the first half of 2013. However all forecasts are subject to risks.

Mutebile said that the main upside risks to the inflation forecasts are domestic supply shocks particularly to food production, higher global commodity prices and exchange rate appreciation as a result of the weak external current account.

BOU is reducing the Central Bank Rates (CBR) by two percentage points to 13.0% for October. “This will bring cumulative fall in CBR, since February this year to 10 percentage points,” said Mutebile.

“I note that some of the commercial banks have reduced their prime lending rates and I hope that, in October, we will see a significant reduction in bank lending rates for all borrowers,” he added on.

He further said that BOU believes that the reduction in the CBR to 13% shows that it is approaching a level which is consistent with a stable core inflation rate of 5% and any reductions are likely to be small.

Mutebile emphasized that the CBR will remain at +/-3 percentage points and the Rediscount Rate and the Bank Rate will now be set at 17% and 18% respectively.


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