The Bank of Uganda has maintained the Central Bank Rate at 9.75% to control inflation and support economic growth. Recent inflation trends show manageable levels despite slight increases, driven by external factors. The GDP growth rate has improved, indicating a recovery in industrial activities amidst a stable macroeconomic environment. The outlook remains cautiously optimistic amidst various potential risks.
The Bank of Uganda’s Monetary Policy Committee (MPC) has decided to maintain the Central Bank Rate (CBR) at 9.75%. The announcement was made by Deputy Governor Michael Atingi-Ego during a press briefing in Kampala. The CBR serves as a critical monetary policy tool impacting lending rates, borrowing costs, and overall economic activity.
The CBR influences inflation control and currency stabilization. By raising the CBR, borrowing becomes more expensive, discouraging consumer spending and investments, thereby slowing economic activity to stabilize prices. Adjustments in the rate can either stimulate growth during downturns or curb excessive inflation during economic booms.
Atingi-Ego highlighted that domestic inflation has developed as anticipated, thanks to previous monetary policy actions. Improvements in the Interbank Foreign Exchange Market have strengthened the stability of the exchange rate. Favorable commodity prices and low global inflation have further supported domestic inflation.
Over the year leading to January 2025, headline inflation averaged 3.4% and core inflation 3.8%. However, January 2025 witnessed modest increases to 3.6% and 4.2% respectively, chiefly due to rising service prices, particularly in transport. Atingi-Ego remarked that despite seasonal food price hikes, inflation remains manageable in the near term.
Looking ahead, the inflation forecast carries uncertainties, primarily due to external factors. The Bank anticipates core inflation in 2025 will range from 4.0% to 5.0% and stabilize at target levels longer term. Risks include potential higher domestic growth, geopolitical tensions, adverse weather impacts on agriculture, and stronger dollar fluctuations impacting import costs.
Conversely, inflation may decrease if strong capital inflows appreciate the exchange rate or if global oil prices fall due to reduced growth from trade disputes. Atingi-Ego confirmed that while inflation may rise temporarily, it will likely revert to manageable levels in the medium term, though global uncertainties could accelerate inflation.
The Bank kept the CBR unchanged at 9.75%, with rediscount and bank rates set at 12.75% and 13.75% respectively. The latest GDP data indicated a growth of 6.7% for Q1 2024/25, reflecting recovery in industrial activities. The projections for GDP growth remain between 6.0-6.5%, bolstered by macroeconomic stability and foreign direct investment in the extractive sector.
However, the growth outlook is subject to multiple risks, including climate challenges, tight financing conditions, and global trade disruptions, potentially dampening economic expansion. Conversely, increased investments and supportive government measures could yield higher growth rates than expected.
The MPC believes that the current CBR effectively balances inflation control with promoting Uganda’s economic growth and transformation. Future modifications will rely on emerging data and risk assessments.
The Central Bank Rate (CBR) is a vital instrument used by central banks to influence a country’s economic performance, impacting lending rates, borrowing costs, and inflation control. Keeping the CBR stable helps navigate challenges related to inflation while promoting economic stability. The Bank of Uganda thus evaluates various economic indicators before making decisions regarding the CBR adjustments.
The Bank of Uganda’s decision to maintain the CBR at 9.75% reflects a calculated approach to managing inflation and supporting economic growth. Amidst various external risks, the predicted inflation range and recent GDP growth indicate optimistic prospects for Uganda’s economy, yet continuous monitoring and adjustments will be crucial based on upcoming economic data.
Original Source: chimpreports.com
