BUY UGANDA VANILLA BEANS                                                                                                                                SOYBEAN OIL 

Bank of Uganda postpones key interbank rate announcement

Tuesday July 5, 2011

The Uganda Central Bank on Monday put off announcing its inaugural key rate and inflation target to finalise some technical issues, but said it would release the rate before the end of this week.

The Bank of Uganda (BOU) said last month that it was shifting its monetary policy and would start targeting inflation rather than money supply growth and would launch a central bank interest rate (CBR) on Monday.

The bank has traditionally watched the amount of money in circulation in line with the level of economic activity instead of price stability.

“We intended to hold a press conference today to announce the CBR, but there were still some technical issues we needed to accomplish,” BOU’s director of communications, Elliot Mwebya, said.

“The markets should be attuned, though, because we have the function any day this week.”

Analysts say the shift in monetary policy will offer the Central Bank firmer leverage in regulating inflation which soared for seven straight months from November last year before it edged lower last month.

Uganda’s year-on-year headline inflation fell slightly to 15.8% in June from 16% in May.

Mwebya said monthly adjustments of the CBR by the BOU’s Monetary Policy Committee (MPC) would signal to commercial banks to raise or lower their lending rates to businesses and consumers.

“Through control of commercial banks’ lending rates we’ll be able to influence the amount of credit going to consumers and via that we can manage the level of demand for goods and services and consequently, inflation,” Mwebya said.

An analyst, however, observed that the CBR was on paper expected to work smoothly and allow BOU to control inflation, but in practice some unique complications might arise that will limit its effectiveness in guiding the markets.

“Everyone is waiting but what’s certain is that the markets will take time to absorb the new monetary policy focus and to start using CBR as a real firm benchmark for pricing credit,” said Ronnie Mutebi, treasurer at Bank of Africa.

“There will be other factors to consider in regulating credit flow other than the CBR. Things like risk profiles and liquidity within banks, will also be key,” he pointed out.

The New Vision Newspaper

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