Inflation projected to drop to 8% next year

The projected decline in inflation will be due to a drop in price of petroleum related imports. Photo / Edgar R Batte  

What you need to know:

  •   The forecast is 2 percent lower than earlier projections made by the Central Bank in October. 

Bank of Uganda has said inflation is likely to drop to between 6 and 8 percent next year, before stabilising  around the 5 percent target by end of 2023. 

The forecast is 2 percent lower than earlier projections by the Central Bank. 

Inflation has slowed, falling slightly to 10.6 percent in November from a peak of 10.7 percent in October.  

Presenting the Monetary Policy Statement for December in Kampala yesterday, Dr Michael Atingi-Ego, the Bank of Uganda deputy governor, said: “The revision in the forecast is due to dissipating impact of 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.”

Bank of Uganda also noted that projections indicate the shilling will remain stronger than expected, building on its 1.6 percent appreciation in November, supported by decline in global commodity prices such as crude oil, among others. 

The shilling has remained stable in the last two months, closing yesterday at Shs3,694.79 against dollar. 

However, Dr Atingi-Ego said the stability was mainly dependent on global developments, particularly the pace of monetary tightening in the advanced economies, which is expected to slow down. 

Bank of Uganda also noted that the positive inflationary outlook had informed a stay of the Central Bank Rate at 10 percent, noting that higher inflationary pressures are beginning to fade, even as there are still existing uncertainties. 

“In the circumstances, the MPC decided to maintain the CBR at 10 percent. This will allow time to assess the evolving economic outlook,” he said, adding that: “Any adjustments to the monetary policy stance will continue to be determined by the coming data and in a measured and gradual manner, ensuring that monetary policy remains supportive of sustainable economic growth in an environment of price stability.”

It is the first time the Central Bank has not adjusted the CBR rate upwards in months. Bank of Uganda has been increasing the CBR rate since April due to persistent inflationary pressures resulting from increase in commodity and fuel prices.  

Bank of Uganda has also indicated that the inflation trend remains uncertain due to ongoing evolution of supply shocks, stressing that while the factors that have elevated inflation over the past year are reversing, it will take some time before the effects pass through to prices paid by consumers.  

Dr Atingi-Ego said the upside risks include potential increase in international commodity prices beyond current forecasts higher depreciation of the shilling than projected, persistent shocks in supply and logistics, entrenched higher inflation and bad weather, which could damage crops and increase food prices. 

BoU expects economy to  grow by 5.5% 

Meanwhile, Bank of Uganda has said the economy is projected to grow by 5.5 percent in the 2022/23 financial year. 

Speaking in Kampala yesterday at the release of the Monetary Policy Statement, Dr Michael Atingi-Ego, the Bank of Uganda deputy governor, said the economy has remained largely resilient to the current shocks, noting that it is projected to grow in the range of 5 percent and 5.5 percent during the 2022/23 financial. 

This will be an increase from the 4.7 percent during the 2021/22 financial year. 

The growth, he said, will be driven by improvement in agricultural productivity as a result of government interventions, investments in oil, and a rebound in industrial activity.

However, Dr Atingi-Ego noted growth had slowed in October with indicators showing weakened growth and a fall in business sentiments during November, which reversed the upward trend recorded in September and August. 

The slowdown in growth, Bank of Uganda noted, was due to moderation of external demand due to softening of global growth. 

“Interest rates have edged up while private sector credit has moderated in line with the tight monetary policy stance,” he said, noting that economic growth is projected to strengthen in the outer years but will remain below long-term trend until the 2025/26 financial year. 

The growth, he said, will remain subject to downside risks, including weaker than expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies and further escalation of geopolitical conflicts that could constrain trade and disrupt global supply chains. 


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