Overview:
The 50 basis points rate hike means that Uganda has one of highest differentials between inflation and policy rates among more than 50 economies tracked by Bloomberg, making its assets more attractive to investors.
Bank of Uganda (BoU) has increases its lending policy rate for the 3rd consecutive time by 50 basis points to nine per cent.
The continued tightening of monetary policy follows Bank of Uganda’s projection that inflation for 2022 will remain “in the range of 7.0 to 7.4 per cent.
In a statement on Friday, 12 August 2022, Dr Michael Atingi-Ego, the BoU deputy governor, said: “The inflation outlook is driven by the lagged impact of higher exchange rate depreciation, dry weather that has resulted in the sharp rise of food crop prices and a complete pass-through of global inflationary pressures.”
He added that weaker domestic household consumption and investment expenditure as tighter financial conditions and higher inflation reduce disposable incomes.
“The annual head line and core inflation rose to 7.9 per cent and 6.3 percent in July 2022 from 6.8 percent and 5.5 percent in June 2022, respectively. Annual food crop inflation continued to rise from 14.5 percent in June 2022 to 1.6.4 percent in July 2022 and annual Electricity, Fuel and Utilities (EFU) inflation rose from 14.2 percent to 17.2 percent in the respective months,” the BoU Deputy Governor said.
“While the current increases in the CBR are meant to bring back inflation to its medium-term objective of 5 percent, these have had the indirect effect in lowering the pace of depreciation of the exchange rate, which is expected to cushion the inflation pressures,”
Dr Michael Atingi-Ego, the BoU deputy governor,
In the near term (12 months ahead), he said BoU forecasts that inflation pressures will continue to rise.
“While the current increases in the CBR are meant to bring back inflation to its medium-term objective of 5 percent, these have had the indirect effect in lowering the pace of depreciation of the exchange rate, which is expected to cushion the inflation pressures,” Dr Ego said.
Going forward, he said the Monetary Policy Committee 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 percent.
The 50 basis points rate hike means that Uganda has one of highest differentials between inflation and policy rates among more than 50 economies tracked by Bloomberg, making its assets more attractive to investors.