BUSINESS: Declining interest rates

Mutebile’s calls

Apart from announcing the regular CBR movement, the central bank has always appealed to banks to charge affordable rates to borrowers to stimulate economic growth.

Uganda’s gross domestic product (GDP) – that has stagnated at approx. 5% for the past 10 years –has been revised downwards by government to 4.5% for this FY (2016/2017) from 5% that government had projected earlier, citing demand related problems and other external factors.

BoU’s Governor Emmanuel Tumusiime Mutebile said on Feb. 15 that he was easing monetary policy to largely support economic activity.

“The easing will also be consistent with achieving the annual core inflation target of 5% over the medium term,” he said.

He said that BoU’s Composite Index of Economic activity for December 2016 indicated a slowdown in economic activity in the quarter to December 2016 and could remain so in coming months due to external and internal factors.

But going forward, Mutebile said the FY 2017/18 would experience GDP growth of 5.5% driven by improved public infrastructure investment, a recovery in private sector investment and improvements in agricultural production and consumption.

He warned that global conditions remain uncertain though tentatively improving.

The BoU’s short term forecasts indicate that inflation will temporarily increase but remain within the target band of 5% plus/minus 3 percentage points.

Bankers agree with Mutebile saying continued interest rate easing on both sides will boost private sector credit and promote economic activity. Centenary Bank’s Kasi said with the right financing, bankers believe that the more affordable it is for borrowers to meet their loan obligations, the more value they will be able to create from their borrowing.

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editor@independent.co.ug