[2008-09-12]  Central Bank vows to tame inflation
THE 15.7% inflation rate will be tamed since falling global oil prices are in the country’s favour, the central bank’s governor, Emmanuel Tumusiime Mutebile, has said.

“In Uganda where inflation is caused by exogenous factors, the Bank of Uganda (BoU) doesn’t have instruments for controlling that, except to stop the second round effects by manipulating money supply to deter further increase,” he said.

The price of oil on the world market fell below $100 this week, the lowest since April.

However, it is resurging due to the Organisation of Petroleum Exporting Countries’ (OPEC) decision to cut supply. By yesterday, it was at $99.45.
“With inflation, we are on our way down. Other than the price of food, petrol prices will decline,” he predicted.

“Our analysis suggests that inflation is not caused by money supply, which BoU can deal with,” Mutebile said at the unveiling of the five-year financial markets development plan at the central bank offices in Kampala on Tuesday.

The governor said the five-year plan was mooted during an East African Community (EAC) monetary affairs committee meeting. During the meeting, governors said there was low penetration and high cost of financial services in the region despite macro-economic stability.

The central bank hopes the plan will spur investments, harmonise regulatory frameworks, support regional integration and promote cost-effective financial intermediation.

Mutebile said the region’s central banks have to come up with a common planning framework after consultations.

The extensive plan which involved sector-wide participation by financial markets players, will bring unregulated market participants into the regulatory ambit and address the spread out of financial infrastructure beyond urban areas.

He re-affirmed the central bank’s position that the financial sector was vibrant, sound and adequately-capitalised.

“Claims that we are closing two banks are rubbish. There is no bank that is threatened by closure,” Mutebile said.
He said measures like cutting bank rates, reining in the Government deficit’s and forcing competition would reduce interest rates.

“To some extent, bank rates influence interest rates, so I will cut those rates. However, I do not have any intention of interfering in the market to control interest rates,” he said.


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