Last week Parliament approved Mr Emmanuel Mutebile as the Central Bank governor for a fifth term ending speculation on who would take up the mantle at the bank.
In Summary
News from central banks often move markets.
Kampala. News from central banks often move markets.
In South Africa, President Jacob Zuma had to appoint three finance ministers in barely two weeks as he tried to correct a lowly known appointment of a back-bencher, which sent the markets and the rand crushing
Last week, Parliament confirmed a fifth term for Emmanuel Tumusiime-Mutebile as the governor of Bank of Uganda (BoU).
The appointment, which will take effect on January 12 next year, will make Mutebile Uganda’s longest-serving Central Cank governor having replaced Charles N. Kikonyogo on January 1, 2001.
News of his reappointment had no impact on the markets and did not influence the movement of the Shilling, which has in the last three weeks, firmed against the dollar.
This, analysts say, indicates the confidence that markets have in Mutebile as the Central Bank governor.
The announcement ended speculation on whether he would be replaced as seen fit by the President whose mandate to appoint a governor and a deputy is enshrined in the Bank of Uganda Act.
Approved expertise
On January 27, 2016, Mutebile will be 67 and his expertise which informed President Museveni’s decision will be needed to “allow for smooth operations of the Central Bank,” as the country heads into a likely volatile post-election period.
Vetting proceedings of the Parliament appointments committee are done in camera but information reveals that the committee based their decision on Mutebile’s “good track record” and the promise not to print money for electioneering. These were sufficient grounds to hand the economist a fifth term at the helm.
But key among other factors was the promise to keep inflation in the single digit range, which now stands at 9.1 per cent.
Inflation has for long been kept at bay, but in October 2011, it spiralled to 30.5 per cent as the economy paid the price for increased money supply as a result of election spending and rising food prices.
The Shilling also depreciated reaching an all-time high – at the time – of Shs2,900 for a dollar. However, at the start of this year, it rapidly depreciated touching an all-time low of Shs3,750 in October. The unit has depreciated more than 30 per cent since the start of the year.
The depreciation (2011) came at a time when Mutebile had just been rewarded with a fourth term but in 2014 he revealed the Central Bank had issued government papers (treasury bills) which could have been misused for the 2011 election financing.
“I was there as central bank governor. I didn’t participate whatsoever but because there was some spending by government dependent on treasury bills which I was issuing, I was financing government indirectly. But since we understood that, we have never done it again and I will not do it this time,” Mutebile said at the 10th annual meeting of the African Science Academies.
Subsequently, after pouring lots of cash into the economy, the Central Bank introduced new policy instruments which could help mop up excess liquidity in the economy. The new policy instruments had negative implications as private sector borrowing plunged with economic growth retrogressing to its lowest in over a decade.
Change in policy
The Central Bank on the recommendation of the International Monetary Fund in July 2011 changed its monetary policy to “Inflationary Targeting Lite.”
This ushered in an era of the monthly announcement of the Central Bank Rate (CBR), which would act as the benchmark lending rate for commercial banks.
Once every month, the Monetary Policy Committee (MPC) at BoU sits to determine the CBR, which among others, is determined by prevailing market forces with the aim of keeping inflation at 5 per cent.
The policy has been biting leading to a hike in interest rates, which currently are averaging at more than 28 per cent. However, this has been a reduction from the 30 per cent, which banks had been quoting when the CBR was at 23 per cent.
With monetary tightening, BoU achieved its major aim of reducing inflation with the economy beginning to recover from a tumultuous period by around 2013, which Mutebile won praises from different corners of the globe.
In one of his recognitions, Mutebile won the award for the Central Bank governor in Africa in 2011 at the annual Banker Awards in Washington, and in 2013 he was rewarded by the Africa Investor Group Award as the best central bank governor.
The reasons for the awards were benchmarked on his ability to steer the economy to recovery when it faced headwinds from high inflation.
But on the local scene, economists criticised Mutebile’s tight grip which they blamed for slowing down the economy leading to an increase in loan defaults and the collapse of a number of small enterprises.
At the start of this year, inflationary pressures returned and the Central Bank came out with a swift reaction raising the CBR to 12 per cent. Currently it stands 17 per cent.
Already, banks have cut back on levels of credit to the private sector and the economy is expected to slow down to 5 per cent. It had earlier been projected to grow at 5.8 per cent.
But beyond Mutebile’s track record, his job requires some level independence if it is to administer better monetary policy. In fact, Mutebile himself has, in the past, said any Central Bank should be free of political interference.
“In essence, operational independence pertains to the independence of the central bank to set its monetary policy instruments, such as the policy interest rate, free of any interference from other persons or authorities, such as ministries of finance. It does not mean that the central bank is free to set its own policy priorities or objectives,” Mutebile said in November 2014.
It is for this that he has often been criticised. On top of being accused of “printing money” in 2011, in the same year, it was also revealed that he yielded to pressure from President Museveni and used $740m (Shs2.5 trillion) from the reserves to purchase fighter jets.
That admission by Mutebile sent the markets into overdrive as that one decision was an interpretation that the independence of the Central Bank was increasingly under pressure.
Dealing with political trappings
Thus, how Mutebile in his new term, deals with such trappings (of government interference) will be a defining axis of the old Mutebile, considering that the populace is increasingly becoming jittery over government’s interference in the affairs of the Central Bank.
How he deals with interference in 2016 will be closely watched by the markets going forward especially if the Shilling loses more value to the dollar.
Many had written off the return of Mutebile based on his utterances on how he was “used” to finance the campaigns of the ruling NRM party in 2011 on one hand.
On the other hand, it has been an illness that has weakened him, which in May 2015, kept him hospitalised in South Africa for some time.
Who is Mutebile?
Mutebile, 66, was born in Kabale District in a peasant family of nine children. He attended Kigezi College Butobere for his O-Level studies, before moving to Makerere College School for his A-Level studies. In 1970, he joined Makerere University studying economics and politics. In 1972, he fled Uganda after he gave a speech criticising the expulsion of Asians from the country by Idi Amin. In 1974, he graduated with a BA Joint Honors (Economics and Politics) from Durham University England.
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