Bank of Uganda's Emmanuel Tumusiime-Mutebile.

Kampala: Uganda’s inflation will rise faster than previously projected but remain within the 5 percent target in the next twelve months, Bank of Uganda Governor Prof. Emmanuel Tumusiime-Mutebile has said.

Mutebile disclosed the figures Tuesday as he read the Monetary Policy Statement for June, keeping the central bank rate (CBR) at 9.0 percent.

“Bo U assesses that the current stance of monetary policy is appropriate given the forecast inflation trajectory and the current state of the economy. The BoU will therefore maintain the Central Bank Rate CBR at 9.0,” Mutebile said. BOU also has set the Rediscount rate and the Bank rate at 13.0 percent and 14.0 percent respectively.

Meanwhile Mutebile said economic activity in the country continues to strengthen. “The latest annual Gross Domestic Product (GDP) estimates released by UBOS indicate that the economy will grow by 5.8 percent in FY 2017 /18 compared to 3.9 percent in FY 2016/17,” he said.

He said economic growth has improved across all sectors: the agricultural sector is estimated to have grown by 3.2 percent, supported by a more robust growth in both food and cash crops; while the industrial and service sectors are estimated to have grown by 6.2 percent and 7.3 percent respectively. GDP growth is expected to strengthen further in FY 2018/19 to 6.0 percent.

In the medium-term, he said, economic growth prospects remain favourable supported by the multiplier effects of public infrastructure investments, improving agricultural productivity, an increase in private sector investment and household consumption and strengthening of the global economy. However, the contribution of net exports to GDP growth will be negative as a result of acceleration in import-intensive components of domestic demand.

Mutebile however said that the exchange rate depreciation and the increasing oil prices pose risk to Uganda’s macro-economy. “The exchange rate has over the last three months come under pressure, driven by global strengthening of the US Dollar and the weaker current account position due to increased demand for imports, which more than offset the growth in exports,” he said.

He said that in financial year 2017 /18, the current account deficit as a ratio of GDP is projected to increase to 5.3 percent from 3.4 percent in FY 2016/17, Mutebile said.