The Bank of Uganda Monetary Policy Committee (MPC) has taken decisive action to address inflationary pressures by announcing an increase in the Central Bank Rate (CBR) to 10.25%. This move comes in response to recent indicators from the Uganda Bureau of Statistics, which showed a marginal decline in headline inflation to 3.3% for March 2024.
Michael Atingi-Ego, Deputy Governor of the Bank of Uganda, highlighted that while certain inflationary factors have been mitigated by reduced aggregate demand and increased supply, the risks of elevated inflation persist. The recent CBR hike has helped stabilize the shilling exchange rate, but vulnerabilities remain due to short-term foreign investor outflows and strong domestic demand.
Looking ahead, short-term projections suggest inflation may rise to between 5.5% and 6% within the next 12 months, with a return to the medium-term target of 5% anticipated in the second half of 2025. However, upside risks such as geopolitical tensions and energy price hikes could pose challenges to this outlook.
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Despite the economy’s resilience, recent high-frequency indicators point to a slight downturn in near-term growth. Uncertainty in the global economic outlook, coupled with tight domestic financial conditions, could dampen domestic demand.
In response to these challenges, the MPC has tightened monetary policy further to anchor inflation around the medium-term target of 5%. The increase in the CBR to 10.25% is a prudent measure aimed at addressing heightened inflation risks while supporting sustainable economic growth, which is essential for Uganda’s socio-economic transformation.
The MPC remains vigilant and stands prepared to respond to any materialization of identified risks, ensuring stability and resilience in Uganda’s economy.
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written by @enock katamba
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