Bank of Uganda holds key lending rate at 10%

The Bank of Uganda recently announced their decision to maintain the key lending rate at 10 percent, indicating confidence in the country's economic recovery and contained inflation. Central Bank Governor Tumusiime-Mutebile highlighted that the current accommodative monetary policy and fiscal stimulus measures outlined in the National Budget 2017-2018 are expected to further support and enhance the anticipated economic improvements. In a CNBC Africa interview, Dr. Kenneth Egesa, Director of Statistics Department at the Bank of Uganda, shed light on various aspects including inflation targeting, monetary policy adjustments, growth projections, private sector credit, government securities attractiveness, and the current account balance. Here are the key points discussed in the interview: 1. Inflation Targeting and Monetary Policy: Dr. Egesa emphasized that the actions taken by the central bank, such as adjusting the Central Bank Rate (CBR) based on inflation forecasts, have played a crucial role in containing inflation. The Bank of Uganda has been following an inflation targeting framework since 2011 and is on track to achieve full inflation targeting by 2018. Despite easing monetary policy since April 2016, Dr. Egesa highlighted that the bank's intention is not to cut interest rates significantly in the near future, maintaining that interest rates will be market-determined. 2. Drivers of Economic Growth: The Director of Statistics Department identified key drivers contributing to economic growth in Uganda. He mentioned the significant improvement in agricultural output, driven by favorable weather conditions, which has led to falling food prices and contributed to lower inflation. Additionally, Dr. Egesa noted a resurgence in the industrial sector following the disruptions experienced in 2016-2017 due to political events and spillover effects from government infrastructure investments. He also anticipated growth in private sector credit, despite the closure of Crane Bank, a major player in the market. 3. Government Securities and Current Account Balance: Dr. Egesa addressed concerns about the impact of monetary policy easing on the attractiveness of Uganda's government securities to investors. While short-term treasury bills saw declines in yields, he mentioned that bonds still remain attractive, especially for offshore investors interested in long-term securities. Regarding the current account balance, the significant drop from 5% to 2.8% year-on-year was attributed to a rebound in export earnings and a slowdown in government project execution, affecting imports positively and leading to an improvement in the current account balance. In conclusion, Dr. Egesa's insights during the interview portrayed a positive outlook for Uganda's economy, emphasizing the progress made in different sectors and the measures being taken to sustain and enhance this growth trajectory. With a focus on maintaining stability, supporting key sectors, and attracting investments, the Bank of Uganda's decision to keep the key lending rate unchanged signals a commitment to fostering economic recovery and growth in the country.