In a move reflecting its commitment to economic stability, the Bank of Uganda (BoU) has opted to keep its central bank rate unchanged at 9.5% for the third consecutive time. The decision was announced on December 6 by the Monetary Policy Committee (MPC), signaling a strategic effort to monitor inflation and uphold the overall health of the economy.
This decision follows a series of adjustments that saw the interest rates rise from 6.5% in April 2022 to 10% in October of the same year, aimed at stimulating economic activities. The current stance implies that lending rates for loans and mortgages will remain above 20% per annum.
BoU, in a statement, asserted that the existing monetary policy is well-positioned to contribute to maintaining inflation around its medium-term target. The policy aims to support economic stability, fostering savings, investment, economic growth, competitiveness, and socioeconomic transformation.
The latest quarterly GDP estimates by the Uganda Bureau of Statistics (UBoS) suggest robust economic growth, with a quarter-on-quarter real GDP growth of 5.2% in the second quarter of 2023, a significant acceleration from 0.4% in the first quarter. This growth is attributed to a strong recovery in the services and industry sectors.
Deputy Governor Michael Atingi-Ego noted that economic growth is expected to remain strong in the coming months, driven by continued recovery in services and industry sectors. Projections indicate growth at around 6% in the Financial Year 2023/24 and a range of 6% to 7% in the medium term. However, uncertainties such as slower global growth, supply chain disruptions, and fiscal policy challenges pose risks to this outlook.
Since the last MPC meeting in October, inflation has shown a gradual decline amid a surge in fuel prices. Annual headline and core inflation dropped to 2.7% and 2.4% in September 2023 from 3.5% and 3.3% in August 2023. Yet, uncertainties linger about whether inflation will continue its downward trend to the central bank’s projected range of 3% to 4% in the fourth quarter of 2024 and within the 4% to 5% range in 2025.
The latest statistics reveal a decline in food prices in November 2023, attributed to a bumper harvest of vegetables and other crops. However, Atingi-Ego cautioned that projections are subject to risks, including global inflation fluctuations and geopolitical conflicts affecting energy supply and fuel prices.
In summary, while Uganda’s economy demonstrates resilience and positive growth, the BoU maintains a vigilant stance, considering both upside and downside risks in the short and medium term.
