BoU maintains lending rate for December 2022 at 10 percent

Bank of Uganda (BoU) has maintained the Central Bank Rate (CBR) for December 2022 at 10 percent buoyed by a slight decline in annual headline inflation.

In a statement issued on Wednesday, December 7, 2022, BoU Deputy Governor Dr Michael Atingi-Ego said the decision by Monetary Policy Committee was due to the fact that annual headline inflation decreased slightly from 10.7 percent in October 2022 to 10.6 percent in November 2022, while the annual core inflation declined from 8.9 percent to 8.8 percent over the same period.

“The decline is a reflection of the impact of previous monetary policy decisions plus easing annual electricity, fuel and utilities inflation, which has continued to fall after peaking at 19.6 percent in August 2022 and has since declined to 12.2 percent in November 2022,” Dr Ego said.

However, he said there we many uncertainties surrounding the outlook that make the path of returning inflation to the target a narrow one.

“Food inflation remains elevated, edging up slightly in November 2022 to 24.1 percent from 23.5 percent in October 2022, reflecting the effects of the drought. The rise in food prices is temporary and is expected to fade in the coming months,” he said.

“In the circumstances, the MPC decided to maintain the CBR at 10 percent. This will allow time to assess the evolving economic outlook. The band on the CBR remains at +/- 2 percentage points. The margins on the CBR for the rediscount and bank rates will remain at 3 and 4 percentage points. The rediscount and bank rates will remain at 13 percent and 14 percent, respectively,”

DR MICHAEL ATINGI-EGO, BoU Deputy Governor

“In the circumstances, the MPC decided to maintain the CBR at 10 percent. This will allow time to assess the evolving economic outlook. The band on the CBR remains at +/- 2 percentage points. The margins on the CBR for the rediscount and bank rates will remain at 3 and 4 percentage points. The rediscount and bank rates will remain at 13 percent and 14 percent, respectively,” he added.

The Deputy Governor said the MPC projects that inflation will continue to moderate, average between 6 to 8 percent in 2023 and stabilise around the medium-term target by the end of 2023.

“This forecast is 2 percentage points lower than what had been earlier projected. The revision in the forecast is due to the dissipating impact of the earlier increases in global commodity prices, subdued domestic demand, effects of the current monetary policy stance, expected decrease in global inflation, and lower exchange rate depreciation,” he explained.

While the factors that have elevated inflation over the past year are reversing, Dr Ego said it will take some time before the effects pass through to prices paid by consumers.

The upside risks he said include: Potential increase in international commodity prices beyond current forecasts  due to the possible effects of capping the price of Russia’s oil, Europe’s ban on Russian crude oil imports, and further cuts in global crude oil production and exports,

He also listed higher shilling depreciation than currently being projected due to simultaneous tightening of monetary policies by major central banks; persistence of supply and logistical constraints to production, and fad weather in the coming seasons which would damage crops and increase food prices.