Central Bank lowers Uganda’s economic growth rate to 2.5 percent

Bank of Uganda has lowered Uganda’s economic growth rate to between 2.5 and 3.0 percent for 2022 as inflation continues to batter the economy.

In the special monetary policy meeting of July 5, the BoU’s Monetary Committee said economic growth is still projected in the range of 4.5 per cent to 5.0 per cent in 2022 and rising slightly to 5.0 per cent to 5.5 per cent in 2023.

But while announcing a new central bank rate on Friday, Dr Michael Atingi-Ego, the deputy governor, said this has changed due to the increasing risks of global recession and weak consumer and business sentiments.

Dr Atingi-Ego noted that inflation could be “tilted to the upside” with “higher domestic food prices [persisting] should the dry weather conditions become more pronounced.”

He also acknowledged the possibility of “downside risks” such as “weaker domestic household consumption and investment expenditure as tighter financial conditions and higher inflation reduce disposable incomes.”

The new projection of 2.5 to 3.0 per cent comes barely weeks after Uganda Bureau of Statistics (Ubos) revealed that annual headline and core inflation rose to 7.9 per cent and 6.3 per cent in July from 6.8 per cent and 5.5 per cent in June 2022, respectively.

Annual food crop inflation continued to rise from 14.5 per cent in June to 16.4 per cent in July 2022 and annual Energy Fuel and Utilities (EFU) inflation rose from 14.2 per cent to 17.2 per cent in the respective months. 

The Bank of Uganda (BoU) on Friday hiked its policy rate by 50 basis points (0.5 per cent) from 8.5 percent to nine per cent.

Dr Michael Atingi-Ego said the central bank’s hawkish stance is intended to “bring back inflation to its medium term objective of five per cent.” 

The BoU projects inflation for 2022 to remain in the range of 7.0 to 7.4 percent. The inflation outlook is driven by the lagged impact of higher exchange rate depreciation, dry weather that has resulted in the sharp rise in food prices and a complete pass-through of global inflationary pressures.