The Bank of Uganda’s Monetary Policy Committee (MPC) has raised the Central Bank Rate(CBR) to 10.25% at its April meeting.
The Monetary Authority said that considering upside risks to inflation, the MPC deemed it necessary to tighten monetary policy further by raising the CBR by 25 basis points to 10.25%.As a result, the rediscount and bank rates will be 13.25% and 14.25% respectively.Uganda’s Monetary Authority said inflation remains a challenge, influenced by a weakening Shilling exchange rate, supply-side shocks, global inflation, and domestic food supply.
In a statement, the Bank of Uganda said while recent hikes in the CBR have had the spillover effect of stabilizing the local currency, the Uganda Shilling remains vulnerable due to outflows of short-term investor funds from the domestic market and strong domestic demand by corporates. A weakening of the Uganda Shilling significantly impacts domestic prices, which could push inflation figures higher.
The Monetary Authority said significant upside risks to the inflation outlook persist, including the conflict in the Middle East which has the potential to increase energy prices, tighter global financial conditions that could lead to further depreciation of the Uganda Shilling exchange rate, and unfavourable weather patterns.
The Monetary Authority said inflation may also decline if measures it has already taken cut demand and global growth deteriorates sharply, resulting in lower import prices.
In the statement, Michael Atingi-Ego, Bank of Uganda’s Deputy Governor, said Uganda’s economic growth for 2023/24 is forecast at 6% and those for subsequent years are expected to hover between 5.5% and 6.5%. However, this forecast is threatened in the near term by an uncertain global economic outlook, Uganda Shilling depreciation, and tight domestic financial conditions that could dampen domestic demand.
A further rise in inflation may dampen household real incomes, leading to reduced consumer spending while high raw material import costs could constrain investment expenditure.
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