BOU: Fall in food prices lowers Uganda inflation

Bank of Uganda has reduced the Central bank Rate (CBR) to 16% to ease monetary policy for potential economic growth.

BOU maintained the rediscount rate and bank rate at 20%and 21% respectively, the policy will also maintain the core inflation over the next quarters, so as to target 5% of the medium term.

According to a press statement on monetary policy April 2016 read out by the BOU Governor Tumusime Mutebile, inflation improved due to the easing of the exchange rate, faster decline of the food prices, depreciation pressures and subdued global economy outlook.

The BoU will therefore reduce the CBR by 1 percentage point to 16 percent. The band on the CBR will be maintained at +/-3 percentage points

— Bank of Uganda (@BOU_Official) April 4, 2016

Annual headline and core inflation declined to 6.2% from 8.5% and 6.9% from 7.6% in March 2016 and December respectively. Due to the fall in food crops, headline inflation declined to 0.8% in March 2016 from 7.1% in February and 16.2% in December 2015.

However there was lower economic activity in the 1^st quarter of 2016 compared to the last quarter of 2015 due to public’s involvement in election processes.

The statement further outlines how external weakness are expected to weigh on inflation both directly through lower import prices, indirectly through reduced domestic activity and changing weather conditions. The country’s Balance of payment (BOP) remains susceptible in the global economy environment.

Monetary Policy Statement April 2016 by The Independent Magazine