adminKAMPALA — Uganda’s aggressive interest rate increases have led the central bank to trim its forecast for economic growth this fiscal year, saying there had to be a trade-off between output and fighting inflation, its governor said. The Bank of Uganda has raised its benchmark lending rate a total of 500 basis points since April, to 16 percent, as a weakening currency heightened inflationary risks.
The rate increases have led the bank to lower its forecast for growth in gross domestic product during the July 2015-June 2016 financial year to 5.4 percent from an earlier 5.8 percent, Governor Emmanuel Tumusiime-Mutebile said in a speech delivered late on Tuesday at a meeting of business executives
“The increase in the CBR is intended to influence other interest rates in the economy, including bank lending rates; otherwise it would not work to curb inflation,” Tumusiime-Mutebile said.
“The increase in the CBR and consequent reduction in the growth of demand will also have a temporary impact on the growth of real output.”
The central bank has sought to keep depreciation of the Ugandan shilling, which is down 22 percent this year, from fuelling a rise in consumer prices.
The finance ministry forecasts the economy will expand by 5.8 percent this year from 4.8 percent last year, as it invests in infrastructure projects like a modern railway.
Dollar demand from importers, a widening current account deficit and presidential and parliamentary elections due in February or March next year have put pressure on the shilling.— Reuters.
Online Reporter