• Tue. Dec 6th, 2022

Uganda Raises Interest Rates to 9 Per Cent, Warns More Hikes to Come

ByReal Muloodi Reporter

Aug 14, 2022

UGANDA, Kampala | Real Muloodi News | Uganda’s Central Bank has raised interest rates by another 50 basis points to 9.0% on Friday, up from from 8.5%.

Policy makers, faced with the most significant cost pressures in six years, signalled willingness to boost rates further if inflation isn’t reined in.

After this third straight increase, the Bank of Uganda has now raised the rate by 250 basis points since June this year in an effort to tame inflation. These back to back interest-rate hikes are the biggest since 2015.

“The inflationary pressures are still with us and there’s need to do everything possible to bring inflation back to target of 5%,” said Deputy Governor Michael Atingi-Ego  in a news conference on Friday in Kampala.

“Going forward, the MPC considers that the monetary policy stance will have to be tightened even further if inflationary pressures persist to ensure that inflation reverts to its medium-term target of 5%.”

Consumer prices have been driven higher by soaring fuel and food costs, attributed to the lingering after-effects of the COVID-19 pandemic and Russia’s invasion of Ukraine, which has disrupted supply chains and caused commodity prices to surge.

Annual core inflation, which excludes food and energy, exceeded the central bank’s 5% medium-term target for a third successive month in July, accelerating to 6.3% from 5.5% in June. Headline price growth quickened to 7.9% from 6.8%.

“The economy continues to face strong cost-push inflation pressures from external environment, dry weather conditions and exchange rate depreciation amidst weak domestic demand,” Atingi-Ego told the news conference.

Inflation forecasts for this year remain in the 7% and 7.4% range, Atingi-Ego said.

Dim Prospects

The shilling has depreciated about 6% against the US dollar this year, spurred by foreign investors exiting risky assets around the globe. This, combined with supply shortages, has fanned inflation.

The rate hike means that Uganda has one of highest differentials between inflation and policy rates among more than 50 leading economies, making its assets more attractive to investors.

The bank lowered this year’s economic growth forecast to between 2.5% to 3%, from a previous forecast of between 4.5% to 5%, reflecting higher costs of production linked to fuel and transportation.

“Overall, economic growth prospects have been dimmed further with increasing risks of a global recession, and weaker consumer and business sentiment as high inflation and commodity prices continue to erode households and business incomes and financial conditions tighten,” Atingi-Ego said.

Harvard University’s Growth Lab projects Ugandan gross domestic product will expand 7.48% through 2030 — the world’s fastest-growing economy in the period.

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