The Bank of Uganda (BOU) has raised the Central Bank Rate (CBR) for August to 14%, from 13% in July. The move is expected to reduce effective demand by making it harder to borrow, Tumusiime Mutebile, the BOU governor, said yesterday.
He pointed out that the tightening of commercial bank borrowing would help bring down inflation in two years? time. Mutebile warned that he was ready to raise the CRB as high as it will require to bring inflation to the targeted 5% by mid-2013.
?The Central Bank has raised the CBR from 13% to 14% in August. The growth is intended to curb the growth of bank credit in the economy and to provide support for the nominal exchange rate,? the governor told a monthly press conference in Kampala.
?Looking ahead, headline inflation will fall back to between 8% and 10% by July 2012 and around 5% by the middle of 2013.?
He said by tightening the monetary policy further, the current high rates of food prices would be prevented from feeding into higher non-food prices by curbing the growth in aggregate demand and spending on goods and services. Headline inflation and core inflation increased to 18.7% and 15.6% in July, from 15.7% and 12.2% the previous month.
Mutebile warned that if the upside risks to inflation increase in the coming months, the CRB will be increased further, pushing up interest rates on commercial bank loans.
He described the current inflation as ?severe? and that the Central Bank will do ?whatever it takes? to curb price pressures.
Mutebile described as ?completely untrue? claims that high expenditure during the presidential elections early in the year stocked up inflationary pressures and the shilling depreciation.
Joseph Opolot, the BOU director for research, said lower growth in Uganda?s main export partners was having a negative effect on the exchange rate.
?Inflation in Asia and elsewhere is growing even while the strength of the recovery in US and the euro area remain uncertain. These are affecting inflation and exchange rate,? he pointed out.