Uganda central bank cuts main rate to 13 pct, more easing seen

KAMPALA (Capital Markets in Africa) – Uganda’s central bank cut its main interest rate on Tuesday to 13 percent from 14 percent to boost growth, and analysts said there was room for another reduction this year.

Policymakers in the East African nation began cutting the benchmark rate in April, bringing it back down from the peak of 17 percent reached as the bank battled a surge in prices.

Core inflation dipped to 4.8 percent last month from 5 percent in August, while the economy expanded by 4.8 percent in the financial year that ended in June, up from an earlier estimate of 4.6 percent, bank governor Emmanuel Tumusiime-Mutebile said.

The economy is expected to grow 5.0 percent this fiscal year, he said, while core inflation will remain around the medium-term target of 5 percent in the next 12 months.

“There is room to support domestic economic growth momentum especially against the ongoing global economic slowdown,” he told a news conference.

The growth rate has been tepid in recent years, hurt by the commodity price slump, and conflict in regional export markets like South Sudan.

This month, the World Bank cut its 2016/17 growth forecast for the country to 5.5 percent from a previous projection of 5.9 percent, citing slowing investments and the impact of South Sudan’s conflict on demand for its exports.

Razia Khan, Standard Chartered Bank’s chief economist for Africa, said she expected another cut at the next rate-setting meeting in December.

“We expect a further 100 bps (basis points) of easing at the December 2016 meeting, after which the policy rate is likely to be kept on hold for an extended period,” she said.

There was no immediate reaction to the cut by the shilling and traders said they expected it to remain stable.