UGANDA, Kampala | Real Muloodi News | Uganda’s central bank reduced its key lending rate by 25 basis points to 10.00% on August 7, citing an improvement in the inflation outlook due to a recovery in the shilling.
The bank’s Monetary Policy Committee (MPC) made this decision after observing that the shilling, which had hit a record low in February, gained over 6% against the U.S. dollar, reducing the risk of persistent inflation.
Inflation in Uganda rose to 4.0% year-on-year in July, up from 2.8% in January, but still below the central bank’s 5% medium-term target.
According to Central Bank Deputy Governor Michael Atingi-Ego, the recent rise in inflation was attributed to sectors such as passenger transport, accommodation, and recreation.
“The MPC noted that the adverse impact of past external shocks has abated, and there has been progress in moderating risks of inflation persistence,” Atingi-Ego stated during a news conference.
He added that the inflation projection had been revised slightly downward compared to the June 2024 forecast, largely due to the improved shilling exchange rate.
The Bank of Uganda expects inflation to continue rising moderately over the next four months due to seasonal factors, with stabilisation around the 5% target anticipated by the first quarter of 2025. This forecast was slightly more optimistic than the bank’s previous projection in June, which expected inflation to stabilise around 5% only in the latter half of 2025.
Atingi-Ego also reported an increase in Uganda’s economic growth, averaging 6.7% annually in the last two quarters of the 2023/24 fiscal year, compared to 5.3% in the previous two quarters.
The growth forecast for the 2024/25 fiscal year remains unchanged, at between 6.0% and 6.5%.
Given these developments, the central bank found it appropriate to slightly reduce the degree of monetary policy restrictiveness.
Atingi-Ego noted that the decision to lower the lending rate was made to support sustained economic growth while keeping inflation in check.
This adjustment in the lending rate is part of the central bank’s broader strategy to balance economic growth with inflation control, taking into account the recent currency stabilisation and the evolving economic conditions.
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