The Bank of Uganda has cut the central bank rate to 14 percent in August 2016 from 15 % in June 2016. Bank of Uganda issues the Central Bank Rate through its bimonthly monetary policy statement read by the governor, Professor Emmanuel Tumusiime – Mutebile at the Bank of Uganda headquarters. This was the third time this year for the bank to cut its bench mark rate (Central Bank Rate) citing improved inflationary pressures.
According to the governor professor Emmanuel Tumusiime – Mutebile, “inflation is forecast to stabilize around the policy target of 5 Percent over the next 6 months and the Bank of Uganda believes that a continued easing of monetary policy is warranted.”
According to the monetary policy statement, Annual headline and core inflation declined to 5.1 percent and 5.6 percent respectively in July 2016 from 5.9 percent and 6.8 percent in June 2016.
Governor Mutebile believes that “the recovery in private sector credit growth and higher public infrastructure spending are expected to support economic growth. He however cautions that, “uncertainty over International economic activity has increased substantially and this could constrain international demand for Uganda’s exports”.
Central Bank Rate (CBR)
Under the Inflation Targeting Lite monetary policy framework, the Bank of Uganda sets a policy interest rate, called the Central Bank Rate (CBR), which is intended to guide short-term inter-bank lending rates and thereby influence the marginal cost of funds for commercial banks. The Bank of Uganda uses regular interventions in the money market to ensure that the 7 day interbank rate is as close as possible to the CBR.
The Central Bank Rate (CBR) is the operating target of monetary policy. It is set once every two months and is publicly announced, at a press briefing held immediately after the rate setting meeting, so that it clearly signals the stance of monetary policy going forward. The CBR is set at a level which is consistent with achieving the objectives of monetary policy.
Sources: Bank of Uganda