What you need to know:
Forecast comes from a sudden hike in commodity prices.
Kampala. Bank of Uganda (BoU) monetary policy committee will on Thursday meet to decide the Central Bank Rate (CBR).
However, even before they meet, the market is already projecting another rate hike as high as 17 per cent.
“We now see the BoU raising its policy rate by 100bps to 17per cent, having previously expected the policy rate to remain on hold,” said Razia Khan, chief economist, Africa at Standard Chartered Bank.
This projection comes from the sudden surge in commodity prices to 7.2 per cent in September 2015, the highest rate since October 2013.
BoU has been increasing the CBR – the benchmark lending rate used by banks – in order to curb the spending power of Ugandans and therefore purge any inflationary pressures.
As the BoU increased the rate this year, inflation was stable at about 3.6 per cent but the warning signs were there, especially the effects of the depreciating Shilling which has dropped by over 30 per cent in the last one year.
After the last meeting in August 2015, BoU was defiant that there were possible risks to inflation, which is why they had to raise the rate to 16 per cent.
“The front-loaded nature of Uganda’s tightening means that the BoU is likely to approach the peak of its tightening cycle. Indeed, risks at this meeting will be finely balanced,” Ms Khan added.
A report from Bank of Africa (BOA) treasury department last week also said the “market is already anticipating a rate hike” even with the relatively stable Shilling over the last one month.