The Bank of Uganda (BOU) has cut the key lending rate to 10.0 percent from 10.25 percent, the first time this year the apex bank has lowered the benchmark rate.
The easing is on the back of the recent recovery of the Ugandan shilling- at least 2 percent from the June meeting – and the moderating inflation, hence an improvement in the overall outlook.The annual headline inflation edged up slightly to 4.0 percent in July 2024 from 3.9 percent in June, largely driven by services inflation which increased to 6.5% in July 2024, buoyed by the increases in passenger transport, accommodation, recreation, sports, and culture services’ inflation.The BOU expects inflation to fall below the 5 percent target in the financial year 2024/25, citing stable demand conditions, lower imported inflation and exchange rate stability.
“The Monetary Policy Committee noted that … the adverse impact of the past external shocks has abated and there has been some progress in moderating risks of inflation persistence,” Central Bank Deputy Governor Michael Atingi-Ego said on Wednesday.
The inflation projection has been revised slightly downwards relative to the June 2024 forecast round, largely due to less depreciation in the exchange rate.
“However, we expect inflation to continue rising moderately in the next four months due to seasonal factors but stabilize around the target of 5% by the first quarter of 2025,” the report added.
Further, the landlocked country anticipates favorable weather conditions resulting in good food crop harvests, higher government and private sector investment in the extractive industry, and effective government intervention programs could boost economic activity.
“Going forward, BOU will adjust its policy stance informed by incoming economic data, with a view to maintaining a low and stable inflation environment, which is necessary for sustainable economic growth.” BOU said in the MPC statement.
The decision means that banks will offer lower credit rates, a relief to borrowers.