Bank of Uganda Monetary Policy Committee (MPC) has maintained the Central Bank Rate (CBR) for the month of April 2023 at 10%.
Michael Atingi-Ego, the BoU Deputy Governor, said this is to continue the sustained economic recovery that is marked by a drop-in inflation.
The March 2023 data from the Uganda Bureau of Statistics indicated that annual headline and core inflation dropped to 9.0% and 7.6% in March 2023 from 9.2% and 7.8% in February 2023, respectively.
“In the MPC’s current assessment, absent new shocks, inflation will continue decelerating and converge to the 5% target by the end of 2023. The factors favouring the continued decline of inflation are lower energy prices, improved global supply chains, lower food crop prices due to favourable weather, the existing spare capacity in the economy, and the exchange rate stability owing to tight monetary and fiscal policies,” Dr Ego said at a press conference on Thursday, 06 April 2023.
The Deputy Governor also explained that whereas the tight monetary policy has enabled the economy to recover, there are still internal and external risks.
“The MPC assesses that the near-term risks to the inflation outlook remain elevated, with considerable uncertainty surrounding the economic outlook,” he said.
“Economic growth remains on a recovery path, averaging 6.8% in the first two quarters of the Financial Year (FY) 2022/23, supported by a stronger recovery in services and agriculture output,” he said.
Dr Ego said, however, the quarterly economic growth for Q2 FY2022/23 dropped to 4.4% from 9.2% for Q1 FY 2022/23, due to a decline in industrial output and a moderation in services output growth.
“Moreover, growth in economic activity, measured by high-frequency indicators, points to a moderation in recent months. The Composite hides of Economic Activity (CIEA) grew by 0.9 percent in the three months to February 2023, lower than 1.2% in the quarter to November 2022. The moderation in growth partly reflects the tight monetary and fiscal policies, as the increase in domestic interest rates and tight credit standards by banks affected the growth in private sector credit,” he explained.
Bank of Uganda projects economic growth in the 5.5 – 6.0% range for FY2022/23, remaining below its long-term trend until FY2025/26 partly because of the tight domestic and external financial conditions.
“Moreover, growing external financing needs are expected to put pressure on the shilling. With lower export-to-import prices and slower growth in export volumes, the current account balance is forecast to deteriorate to a deficit of 7.4% of GDP for the next three years, keeping some drag on economic growth,” the Deputy Governor said.
