Uganda Cuts Key Rate to Record Low to Boost Sluggish Growth

KAMPALA (Capital Markets in Africa) – Uganda’s central bank reduced its benchmark rate to the lowest since it was introduced in 2011 to boost an economy that’s projected to grow at the slowest pace in four years.

The Monetary Policy Committee cut the key rate by 100 basis points to 10 percent, Bank of Uganda Governor Emmanuel Tumusiime-Mutebile told reporters Monday in the capital, Kampala. The central bank has reduced the rate by 700 basis points since the start of last year.

The economy of Africa’s biggest coffee exporter may grow by 5 percent in the year through June 2018, the governor said. That compares with 5.5 percent forecast by Finance Minister Matia Kasaija in the June 8 budget. Gross domestic product will expand an estimated 3.9 percent this fiscal year. The East African nation plans to raise revenue by 18 percent and boost spending on infrastructure needed for the start of oil production in 2020.

“With domestic inflationary pressures remaining subdued and given the continued weak growth prospects, the Bank of Uganda judges that continued easing of monetary policy is appropriate,” Tumusiime-Mutebile said.

Uganda’s inflation rate climbed to a 16-month high in May of 7.2 percent, driven by rising food costs, according to the statistics office. Standard Bank Ltd.’s local unit sees inflation averaging about 7 percent for the next few months before moderating toward 6.5 percent by the end of the year, it said in an emailed note June 15, forecasting a 50 basis-point cut in the interest rate.

Inflation will stabilize at about 5 percent over the next 12 months, Tumusiime-Mutebile said.