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The East African | Uganda keeps key lending rate at 12 Percent Again

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Posted March 5, 2013 by Ugandan Diaspora News Team in Business ~ 6,454 views

     

The Bank of Uganda (BoU) has maintained its Central Bank Rate at 12 per cent for the fourth consecutive month to mitigate against emerging risks of a rise in the cost of living and help the economy continue on the recovery path.

Last week, the Uganda Bureau of Statistics said that the pace at which prices of basic goods and services have been going up dropped to 3.4 per cent in February from 4.9 per cent in January.

The statistics body said that the food price deflation rate stood at 2 per cent in February compared to a rate of inflation of 0 per cent in January.

The zero inflation rate indicates that prices did not change last month, however the annual rate of inflation of other goods that does not include food – otherwise known as core inflation – rose to 3 per cent from 1.2 per cent respectively.

“Bank of Uganda’s forecast for annual core inflation over the next 12 to 18 months remains largely unchanged at around five per cent, though the upside risks have increased somewhat. The recent rise in monthly core inflation and impact of the base effects in the index in the corresponding months of 2012, point to a rise in annual core inflation,” said BoU in a statement.

The central bank said that the continued weakness in the growth of shilling denominated credit, the current below potential economic growth rate and the recent increase of foreign exchange inflows which had strengthened the currency mitigated against inflationary pressures.

Central banks use interest rates and other monetary policy tools to guard against inflation.

ALSO READ: Central banks in the spotlight over EAC economies this year

A rising cost of living means a faster increase in the prices of basic goods and services, and in an environment where wages are not going up at the same rate, people have less funds that can saved and invested.

In such an environment, investors will prefer to hold stronger currencies like the dollar and this reduces demand for the local currency and it depreciates.

BoU first maintained the Central Bank Rate at 12 per cent at the beginning of December after consistently bringing it down from a 23 per cent peak in November last year.

READ: Uganda maintains key lending rate at 12pc

The central bank said that although economic growth is still below potential, it was expected to recover this year through to 2014.

“Real GDP growth is projected to gradually recover in 2013 and 2014, a projection that is supported by recent trends in the composite index of economic activity, that points to signs of increased buoyancy in the economy,” said BoU.


About the Author

Ugandan Diaspora News Team

Ugandan Diaspora News Online is an independent, non political news portal primarily aimed at serving Ugandans who work and reside outside Uganda. Our aim is to be a one stop shop for everything Ugandan and the celebration of our Ugandan heritage.

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