Bank of Uganda Maintains CBR at 7% As Inflation Continues to Grow

The Bank of Uganda has maintained the Central Bank Rate (CBR) at 7% mainly to encourage low lending rates among Supervised Financial Institutions.

The Central Bank has also maintained the margin on the rediscount rate and bank rate at 3% on and 4% point respectively meaning rediscount will be maintained at 10% and bank rate at 11%.

This is to help in the recovery of the economy which has largely been affected by the effects of Covid 19 pandemic which has affected both demand and supply.

According to the Governor Bank of Uganda, Emmanuel Mutebile, because of the economic outlook uncertainty that has come with the Pandemic which is heavily contingent upon the intensity, and duration, particularly the heightened risks associated with the second wave if the infections.

“The MPC is cognizant that its primary mandate is to achieve the medium-term target of inflation of 5%. However, in the current conditions, supporting the recovery of the economy is overriding in the conduct of the monetary policy provided inflation remains in the range 5%, with in +/-3% points,” Mutebile stated in the Monetary policy statement for August 2020 that released today.

The same statement indicate that annual headline and core inflation rose to 4.7% and 5.8% respectively in July 2020 up from 4.1% and 4.9 registered in June 2020. The core inflation is expected to peak at 6.1% in the first quarter of 2021 while headline inflation could peak at 6.2% in the same period.

However, despite the challenges, the Composite index for the economic activity grow by 5.7% month to month in June 2020, indicating a pickup in economic activity relative to the contraction registered in the three months to May 2020. The purchasing managers index also continued to register improvements since May 2020 and slightly crossed the 50mark indicating an improvement in the business environment.

“Therefore, economic growth in the financial year 2020/2021 is projected in the range of 3-4% further increasing to 5-6% in 2021/2022. Economic growth is consequently expected to remain below the potential growth rate until 2022/2023. The economic outlook is extremely uncertain, largely because of the unpredictable intensity and duration of the pandemic,” Governor Mutebile added.

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