The Bank of Uganda (BoU) has defended its monetary policy stance of inflation targeting lite, saying it is having the desired effects.
The BoU introduced the inflation targeting lite monetary policy stance in response to runaway inflation after the 2011 general election.
The central bank uses the Central Bank Rate (CBR) to manage lending rates and control inflationary pressures. The latest development has seen reduction in CBR from 11 percent in April 2017 to 10 percent in June 2017.
There are public concerns that while the CBR has been reducing, from 17 percent in March 2016 to the current 10 percent, banks have continued to charge high interest rates on lending to the private sector.
Responding to media queries on the success or failure of using the CBR, Governor Emmanuel Tumusiime-Mutebile said it has been excellent in dealing with control of money supply and demand and dealing with inflationary pressures.
Earlier, while announcing the Monetary Policy Statement for June 2017, Governor Mutebile said despite increase in annual headline inflation now at 7.2 percent, annual core inflation remained relatively stable, increasing only marginally to 5.1 percent in May 2017 from 4.9 percent in April 2017.
The Governor said the economy has continued to grow at a moderate pace and private sector credit is expected recover.
Governor Mutebile said interest rates have actually declined from an average of 25 percent to 20.5 percent presently.
The BoU Executive Director for Research and Policy, Dr Adam Mugume, said the effects of the CBR have been transmitted to interest rates which have actually come down.
According to Dr Mugume, if the CBR was not effective there wouldn’t have been such a reduction in interest rates.