The Monetary Policy Committee (MPC) of the Bank of Uganda has opted to maintain the Central Bank Rate (CBR) at 9.5%, affirming its commitment to fostering economic stability and growth.
In a statement issued by Michael Atingi-Ego, the Deputy Governor of the Bank of Uganda, the decision to retain the current monetary policy stance aligns with the ongoing evaluation of inflation and growth prospects. The stance is designed to provide continued support for socio-economic transformation.
Atingi-Ego disclosed that both headline and core inflation experienced a marginal uptick in January 2024, reaching 2.8% and 2.4%, up from 2.6% and 2.3% in December 2023, respectively.
Despite the increase, Atingi-Ego emphasized that inflationary pressures remain subdued, attributed to diminishing supply-side shocks, global inflationary trends, and the implementation of stringent monetary and fiscal policies. Favorable weather conditions leading to improved domestic food supply have contributed to the decline in food inflation.
“A favorable balance of payments and a tight monetary policy have stabilized the exchange rate, alleviating domestic inflationary pressures,” noted Atingi-Ego.
While acknowledging a slight upward revision in short-term inflation forecasts due to recent exchange rate depreciation, the projections are anticipated to stay below the medium-term target of 5%. Inflation is expected to hover around 3% in the first half of 2024, reflecting stable demand conditions and ongoing global price pressures.
Looking ahead, core inflation is projected to rise to a range of 4.5%-5.0% in FY 24/25, with a sustained level of around 5% in the medium term.
On the economic front, Atingi-Ego highlighted a positive trend in growth, attributing it in part to the diminishing impact of previous tight monetary and fiscal policies. The first quarter of FY2023/24 reported a GDP growth of 5.3%, driven primarily by increased household expenditure.
Indicators for December 2023 suggest a continued economic recovery in FY2023/24, with growth projected at 6%, consistent with the December 2023 forecast. The outer years anticipate growth in the range of 6.5%-7%, backed by a resurgence in external demand, a low inflationary environment boosting household incomes, and sustained investment activity in the oil sector.
Despite aligning with projections from the December 2023 forecasts, Atingi-Ego acknowledged existing uncertainties. “Overall, the risks to the outlook for inflation continue to be tilted to the upside. Therefore, the MPC decided that keeping the CBR unchanged was necessary to anchor inflation around the target in the medium term,” he explained.
Consequently, the Central Bank Rate remains steady at 9.5%, with bands on the CBR at +/-2 percentage points and margins on the CBR for rediscount and bank rates at 3 and 4 percentage points, respectively. As a result, the rediscount and bank rates will remain at 12.5% and 13.5%, respectively.
