Mutebile Urges Lower Interest Rates

pilule geneva;”>Central Bank Governor, patient Emmanuel Tumusiime-Mutebile said the decrease was compelled by the “need to stimulate domestic demand to support the economy.”

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Reading the last the last Monetary Policy Statement for this financial year (2012/2013) in Kampala on Thursday, Mutebile observed that in the financial year, 2013/14 it’s unlikely that net export demand will continue to provide the primary source of growth for the economy.

The Governor said inflation remained stable in May while annual Headline Inflation rose only marginally to 3.6 percent from 3.4 percent the previous month.

“BoU expects that inflation will stabilize around target policy of 5 percent over the next few months,” said Mutebile.

“The change in inflation forecast is mainly because household consumption demand is lower than expected, which will dampen pressures on demand. Strong credit growth will be important in boosting demand next year,” said the Governor.


The band on CBR will be maintained at + or – 2 percent and the margin for the discount rate at 3 percent.

It remains unclear if a one percentage reduction in lending rates will boost borrowing considering that commercial banks have fallen short of reducing their interest charges.

This has led to collapse of businesses and failure to repay individual loans since interest rates are hinged on prevailing inflationary rates.

Mutebile, however, said BoU expects commercial banks to lower their lending rates, “which will drive investment in the local private sector.”

Acknowledging that banks were not “adequately responding” by lowering interest rates, Mutebile said “it’s the best that Bank of Uganda can do at this point.”

Reminded that the banks have shut their ears and eyes to the low CBR, Mutebile responded: “I don’t agree that there’s nothing Bank of Uganda can do if commercial banks don’t respond to the CBR, I just think we have to keep trying.”

Mutebile put the low household consumption down to high lending rates and insisted “people aren’t spending because they aren’t borrowing.”

He assured BoU was now forecasting slightly lower inflation rates in the short term.

The rediscount rate and Bank rate have been set to 14 percent and 15 percent respectively.

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