Why banks won’t hurry to cut interest rates

Slackening economy  

“Economic activity seems to have slackened in the first half of 2019 compared to the second half of 2018,” Mutebile said as he announced the CBR on Oct.07.  UBOS figures show that in the second quarter of 2019, GDP slowed to 5.4% year-on-year compared to 6.8% in the fourth quarter of 2018.

In addition, Mutebile said that the BoU’s high frequency indicator of economic activity, the Composite Index of Economic activity (CIEA), points to a moderation of economic activity in the first quarter of FY 2019/20.

“The outlook is uncertain, particularly as a result of the unfavorable global economy,” he said.

Moreover, a combination of widening fiscal and current account deficits, coupled with public sector domestic financing needs, could exert pressure on the lending interest rates leading to further moderation of economic growth.

This development has come at the time the Uganda Bureau of Statistics has reversed the country’s economic growth figures from Shs 115trillion for the Financial Year 2015/16 to Shs122trillion for the Financial Year 2018/19 using the constant prices for the Financial Year 2016/17.

Going forward, Mutebile said the central bank will continue to monitor emerging price and output developments to ensure that monetary policy decisions remain consistent with price stability while being supportive of sustained noninflationary economic growth over the next 2-3 years.

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