emmanuel tumusiime - mutebile : basic principles guiding monetary policy in uganda speech by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the annual dinner of uganda ’ s bankers ’ association, kampala, 30 november 2012. * * * the chairman and members of uganda bankers ’ association, members of the diplomatic corps, distinguished invited guests, ladies and gentlemen. i am very pleased to be here with you at the traditional end of the year annual dinner of the uganda bankers ’ association. i would like to thank the chairman of the uba for inviting me to be guest of honour at this occasion, which is an honour i appreciate greatly. i want to take this opportunity to make a few remarks about the basic principles which guide our monetary policy in uganda, especially in the light of the reforms we have introduced over the last 18 months which, of course, are very pertinent for the banking industry. as you all know, the bou introduced a new monetary policy framework at the start of the last fiscal year. the new framework is an inflation targeting lite framework ( itl ), similar in its basic features to that used by many central banks in advanced economies and emerging markets around the world. the primary objective of our monetary policy is to hold the annual rate of core inflation to 5 percent over the medium term. that does not mean that we will aim to keep core inflation at five percent all of the time, because that is neither possible nor desirable. prices are subject to supply side shocks which can drive inflation up well above policy targets, as happened in 2011. monetary policy cannot realistically prevent inflation from rising in the short term if prices have been hit by a large supply shock, such as a food price shock, in uganda or anywhere else in the world. what monetary policy can realistically achieve is to bring core inflation back down over a period of time, which in most cases will probably be in the region of a year at least, depending on the size and nature of the shock. when faced with a supply side shock to prices, of the type which hit our economy in 2011, the goal of the central bank must be to ensure that the initial rise in prices triggered by the shock does not feed into a self reinforcing spiral of higher prices, which would lead to higher inflation becoming persistent. the central bank cannot prevent a temporary rise in inflation, but it must not allow this to turn into permanently higher inflation. to

the field on topics related to the digitalization of banking services, including presentations on how banks can strategically position themselves in rapidly changing financial markets, new paradigms for financial page 6 of 7 inclusion, risk based oversight and regulatory compliance and career development. you will have the benefit of an excellent team of resource persons, most of who are senior officials in the financial services industry in east africa, and who have come here to share their expertise with you. i am confident that the presentations and discussions in this banking school will offer you valuable insights and contribute to the development of your careers. thank you for listening. page 7 of 7