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Uganda holds rate, sees core inflation in target in 2017
Uganda's central bank left its benchmark Central Bank Rate (CBR) unchanged at 17.0 percent, saying it “believes that this monetary policy stance will curb the rise in core inflation over the next two to three quarters and then gradually bring it back to the target of 5 percent over the medium term.”
The Bank of Uganda (BOU), which raised its rate by 600 basis points in 2015, said the inflation outlook had improved slightly since December due to a stability in the shilling's exchange rate and food price developments, with the impact of the El Nino weather pattern on food prices mild.
The BOU forecast that core inflation would peak at 6-9 percent in the second quarter of this year and then gradually fall back to the 5 percent target in the course of 2017. In December the BOU had forecast that core inflation would peak at 10 percent in the third quarter of 2016.
However, the central bank also pointed to “significant upside risks to this outlook,” including the exchange rate and the possibility of adverse weather.
Uganda's statistics office has rebased its consumer price index to 2009/10 to reflect an expanded consumption basket and a lower share of food crops.
As a result, headline inflation in December 2015 eased to 8.4 percent from a previously reported 9.3 percent while core inflation rose to 7.6 percent from 7.4 percent.
In January 2016 headline inflation eased further to 7.6 percent while core inflation fell to 7.1 percent, but although core inflation eased in January, the BOU said the inflation rate had risen in the last three months, reflecting “persistence of underlying inflationary pressures.”
Uganda's shilling started depreciating in April 2014 and fell steadily to the end of September 2015 when it hit 3,696 to the U.S. dollar, a drop of 32 percent since the start of 2014.
Since then it has been trending firmer and was trading today at 3,412 to the dollar, down 1.2 percent from 3,372 at the start of the year. Compared with the low on Sept. 30, the shilling is up 8.3 percent.
Uganda's Gross Domestic Product grew by an annual rate of 4.9 percent in the third quarter of last year, down from 7.1 percent in the second quarter, but the BOU said data indicated that growth in the fourth quarter was higher than in the third quarter and consistent with its forecast for growth of 5 percent in the financial year 2015/16, which ends June 30.
Earlier this month the central bank's governor told Reuters that the growth forecast for 2015/16 had been cut for the second time to 5 percent from 5.4 percent forecast in August.
For the 2016/17 financial year, the central bank lowered its forecast to 5.5 percent from a previous 5.8 percent, with the reduction reflecting “the current global economic weakness and volatility in the international financial markets.”
www.CentralBankNews.info
Source: http://www.centralbanknews.info/2016/02/uganda-holds-rate-sees-core-inflation.html
