KAMPALA-Bank of Uganda (BoU) has maintained the Central Bank Rate (CBR) for the month of June 2023 at 10 percent even as the economy experiences a decline in inflation.
Bank of Uganda Governor Dr Michael Atingi-Ego on Tuesday explained that the Monetary Policy Committee has decided not to reduce the cost of credit through the CBR as there are still risks to the inflation rate which could reverse the trend.
“Despite the improvement in the near-term inflation outlook relative to the assessment at the MPC meeting of April 2023, the current inflation projections remain sensitive to elevated risks,” he announced at a press conference.
“The MPC recognized that significant risks persist in the economy, and that the current monetary policy stance remains appropriate to consolidate the gains made and restore price stability while supporting economic growth,” he added.
The CBR is an indicator of the cost of money to commercial banks, on which the bank may base their lending rates, hence determining the flow of money into the economy.
BoU started raising the CBR last year to tame inflation which later hit the 10 percent mark, with items like food, fuel, and building materials leading in price increments.
Last month, the Uganda Bureau of Statistics reported that the annual headline inflation had dropped from 8 percent in April to 6.2 percent at the end of May.
However, Dr. Atingi-Ego said that while they hope inflation will continue going down if agricultural output, better weather, lower global commodity prices, and lower economic performance, it is possible for the opposite to happen.
Dr. Adam Mugume, the Executive Director of Research, explained that the uncertainty of where the conflict in Eastern Europe will end as well as the lending rates by the global lenders are major causes of concern on the outlook of inflation.
These factors are also expected to have an impact on economic growth according to the Committee.
Inflation in Uganda was part of the global situation that followed the high demand for goods and services after economies reopened from the #Covid-19 pandemic, and this was worsened by the Russia-Ukraine war which further disrupted supplies around the world.
Uganda was mainly affected by the high cost of fuel, and wheat cooking oil before poor agricultural output made it worse.
Dr. Atingi-Ego said they expect the economy to grow at between 6 and 6.5 percent next financial year, compared to the estimated 5.3 percent for the year ending June 2023, before accelerating to 7 percent in the subsequent years.
This growth is expected for increased government expenditure, increased investment in the oil and energy sectors, expected recovery in manufacturing and construction, and higher export commodity prices.
However, he said this also still has risks it is facing and that there is high uncertainty about economic growth due to factors like low global growth, geopolitical tensions, and dwindling sources of external finances, among others.