BoU Right to Keep Key Lending Rate At 11 Percent, Says Expert

Bank of Uganda was right to maintain the central bank rate the same at 11% because of the prevailing market risks, according to Stephen Kaboyo, the managing director at Alpha Capital Partners, a financial services firm operating in Kampala. “Looking at the overall economic picture, the balance of risks remains within the zone for which the current monetary stance seem appropriate,” Kaboyo said. He added that while inflation edged up a bit, the Central Bank still has got enough elbow room to keep rates on hold for some time as inflation bottoms out.

Uganda’s statistics agency announced at the end of last month that annual headline inflation marginally went up to 2.1% in the year ended November 2014 from 1.8% in October while core inflation [the target for the central bank’s monetary policy] declined marginally to 2.3% in November, 2014 from 2.4% in October. Kaboyo said the current depreciation of the shilling against the popular US dollar is also a g factor that BOU could have considered to keep the CBR the same. The weakening of the shilling is likely to drive core inflation higher, according to Kaboyo but, he added, BOU will be cautious to ensure that prices don’t sky-rocked. Uganda’s headline and core inflation jumped a 30% mark at the end of 2011, the highest since 1993, but was brought down to the current levels by the Central Bank.

Source : The Independent

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