UGANDA, Kampala | Real Muloodi News | The Bank of Uganda increased the Central Bank Rate (CBR) to 8.5 per cent from 7.5 per cent on Tuesday, in an effort to curb inflationary pressures that have sparked a wave of street protests across the nation.
The interest rate hike brings the Bank’s benchmark lending rate to the highest it has been in more than two years.
The Ugandan shilling advanced after Bank of Uganda’s announcement, gaining 0.8% to 3,713.89 per dollar on Tuesday, the most since June 17.
The move followed Tuesday’s extra-ordinary Monetary Policy Committee (MPC) meeting, which was convened to stabilise inflation around the medium-term target of 5% by mid-2024, said Michael Atingi-Ego, Deputy Governor of the Bank of Uganda, in a virtual briefing on Tuesday in Kampala.
Uganda’s MPC which normally convenes every two months, was the first in Africa to call a special meeting since Russia’s invasion of Ukraine upended global supply chains and caused inflation to surge.
Mr Atingi-Ego said inflation jumped to 6.8% in June from 6.3% the previous month, reaching the highest level in more than five years, necessitating an aggressive monetary policy response to calm price pressures.
High prices of basic commodities, such as vegetable oil, fuel and washing soap have stirred widespread public anger in Uganda, prompting the emergency interest rate hike.
“A higher interest rate is needed to stabilise inflation,” Mr Atingi-Ego said. “The inflation outlook is uncertain, given Covid-19 containment measures in Asia, weak domestic agriculture production due to [the] drought and weak exchange rate.”
According to the June 2022 preliminary GDP estimates by the Uganda Bureau of Statistics (UBoS), the Ugandan economy grew by 4.6 per cent in Financial Year 2021/22, from a revised growth rate of 3.5 per cent the previous year. The economic growth was driven largely by private investment, despite imports far exceeding exports.
However, Mr Atingi-Ego said overall, economic activity is projected to remain modest as the shocks to commodity prices, production and distribution disruptions, and global inflation continue to dim the prospects for domestic economic growth.
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