Business

Private Sector Improves Amidst Reduced CBR

Following the reduction of the Central Bank Rate (CBR) by the Bank of Uganda to 9%, the private sector in Uganda has improved its performance.

This is according to the just released Stanbic Bank’s Purchasing Manager’s index (PMI) for March showing an improvement from 51.1 posted in February to 53.2 in March.

However this PMI average of the first quarter (q1) of 2018 is slightly lower than the 54.0 average that was registered in the fourth quarter of the year 2017 meaning that although the private sector is improving, the growth is sluggish.

Commenting on March’s survey findings, Jibran Qureishi, Regional Economist E.A at Stanbic Bank said noted that the operating conditions in Uganda’s private sector have improved but much still needs to be done to improve them better.

“That being said, credit growth to the private sector should broadly recover over the course of this year courtesy of the accommodative monetary policy stance adopted by the Bank of Uganda in addition to improving domestic demand conditions,” he states.

In February 2018 Bank of Uganda further reduced the Central Bank rate by another 0.5 of a percentage point to 9.0% resulting in the lowest CBR since the benchmark figure was introduced in 2011.

In response, Stanbic Bank which maintains a policy of matching adjustments of the CBR with equal changes to its Prime Lending Rate (PLR) announced another reduction of its PLR to 17% effective 1st of May this year.

Revealing the underlying reasons behind the PMI’s sustained upward trajectory, Benoni Okwenje, Stanbic Bank’s Fixed Income Manager stated; “Forming the basis for growth was an increase in new business. Private sector firms reacted by expanding their workforce numbers at the end of the first quarter. Consequently, business activity rose for the fourteenth month in succession. Elsewhere, output charges continued to rise, driven in part by higher cost burdens.”

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He continued, “Meanwhile, higher volumes of new orders spurred businesses to increase their purchasing activity in March, following a month of contraction mid-quarter. However, due to production demands, inventories fell for the second month in succession. On the price front however, higher purchase and staff costs led to a sustained increase in overall input costs in the private sector during March. In fact, input price inflation occurred across all five monitored sub-sectors, in line with the survey trend so far Higher raw material prices alongside fuel costs drove up purchase prices, whereas rising costs of living was the main factor influencing average wages/salaries.”

The Stanbic PMI is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

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