Bank of Uganda maintains repo rate at 10%

Last week, in the Monetary Policy Committee (MPC) meeting of the Bank of Uganda, the decision was made to maintain the Central Bank Rate at 10%. The economic growth for the financial year 2019/2020 is estimated to be between 6% to 6.3%, attributed to the accommodative monetary policy that has led to increased private sector credit, expansionary fiscal policy, and the multiplier effects of public infrastructure investments. Oscar Emasu, a research analyst at Crested Capital in Uganda, joined CNBC Africa to shed light on the factors behind this decision and discuss the current economic trends. Emasu highlighted that despite a slight slowdown in economic activity, the overall outlook remains positive. Inflation has been subdued, with private sector credit growing by around 12% year-on-year, signaling a robust economy. The Bank of Uganda is optimistic that this trend will continue, especially considering the stable inflation rate amidst global economic challenges, such as low external demand due to a depressed global economy. Despite external factors impacting Uganda's economy, there are positive indications for the upcoming months. The recent core inflation data showed a rise to 4.6% in April, nearing the 5% medium-term target set by the Bank of Uganda. However, in the August monetary policy statement, core inflation decreased by 0.3%. Emasu attributed this fluctuation to various factors, such as a competitive landscape in the communication sector leading to reduced rates and lower prices in energy, fuel, and utilities. These price adjustments contributed to stabilizing the core inflation rate around the central bank's target of 3.5%. The connection between the monetary sector and its impact on the lives of ordinary Ugandans was also discussed. Emasu emphasized that the central bank rate directly influences lending rates, which have decreased over recent months, promoting private sector credit growth and reducing credit stress. The policy's accommodative nature has facilitated a positive credit environment with a decline in non-performing loans. Emasu emphasized the importance of monitoring agricultural performance as it reflects broader economic activity and drives government investments. Addressing potential loopholes in agricultural policies and improving government project implementation are essential for sustaining economic growth. Overall, the decision to maintain the repo rate at 10% reflects the Bank of Uganda's confidence in Uganda's economic resilience and the positive outlook moving forward.