While releasing the Bank’s Monetary Policy Statement for February 2018 in Kampala on Tuesday, the Central Bank Governor, Professor Emmanuel Tumusiime-Mutebile, said the reduction means the country can withstand the runaway price increases that come with the increased demand, access to cash or increased liquidity.
It is a continuation of the Bank of Uganda (BOU)’s easing campaign that began in 2011.
In 2011, the key lending rate rose to 23 percent, as the Bank struggled to contain runaway away inflation that reached over 30 percent.
As inflation started to slow, the Central Bank also began trimming its key rate, up to the current 9 percent.
The rate which is the lowest the Central Bank has had in the last five years is in an effort to spur credit growth in the economy.
“A cautious easing of monetary policy is warranted to further boost private sector credit growth and to strengthen the economic growth momentum, given the spare capacity in the economy and the objective of keeping inflation close to the target” Prof Mutebile said.
Uganda's headline inflation rate declined to 3.0 percent in January from 3.3 percent in December and while the near-term forecast is similar to that from December, the BOU said the 12-month forecast had been lowered by around 1 percentage point, mainly due to lower food prices.
Uganda's economy is projected to have grown between 5.0 and 6.0 percent in 2017, up from 2.5 percent in 2016, and the BOU forecasts growth of 5.0-5.5 percent in the 2017/18 financial year, which ends June 30.
According to Mutebile Uganda’s economic growth is projected to average 6.3 percent in the next five years, boosted by public investments, increasing growth in consumption and improved agricultural productivity.