KAMPALA, March 7 (Xinhua) — Uganda’s central bank has announced that its policy rate will be raised to 10 percent, up from 9.5 percent, due to the depreciation of the country’s local currency and the expected rise in inflation.
Bank of Uganda Deputy Governor Michael Atingi-Ego, while releasing a monetary policy statement Wednesday, said the depreciation, which started in November 2023 and became steeper in February 2024, was in part caused by the outflow of some offshore investors’ funds from the domestic market.
A weaker shilling could drive up inflation, he said. “Inflation is projected to rise above the medium-term target of 5 percent by quarter one of financial year 2024/2025 and stay above 5 percent throughout 2025 unless monetary policy is tightened.”
The projected economic growth rate of 6 percent for the financial year 2023/2024 will remain unchanged, Atingi-Ego said.
“However, economic growth in the outer years is projected in the range of 5.5 percent to 6.5 percent, compared to an earlier projection of 6.5 percent to 7.0 percent,” he said. “The downward revision of growth in the outer years largely reflects the likely impact of tighter monetary policy, which is required to stabilize inflation around the medium-term.”
He warned of a higher Central Bank Rate to bring inflation down and anchor inflation expectations.
“High inflation rates hurt economic growth, leading to significant and permanent reductions in the per capita income,” Atingi-Ego said. “Therefore, tightening monetary policy in the current circumstances is consistent with supporting sustainable growth, which is a prerequisite for social-economic transformation.”
