Bank of Uganda maintains policy rate at 9.75%
Due to policy actions by the central bank in October 2024, the lending rate in commercial banks stood at 19 percent.
What you need to know:
- The other upside risk is if the geopolitical tensions intensify resulting in disrupting trade and leading to sustained increases in shipping costs or commodity prices, thereby lowering global growth and further limiting the domestic economy’s supply capacity, adding that extreme weather conditions drive food prices higher than projected.
The Monetary Policy Committee of the Bank of Uganda has maintained the Central Bank Rate at 9.75 percent, arguing that the risks to the inflation outlook are balanced.
The central bank is also optimistic that the current Central Bank Rate will be effective enough to control further rise in the commercial lending rate in banks. Due to policy actions by the central bank in October 2024, the lending rate in commercial banks stood at 19 percent.
The policy rate that has been announced will also be effective in maintaining the stability of the country’s foreign exchange market, according to BoU officials.
“Overall, the risks to inflation outlook are balanced. The monetary Policy Committee (MPC) noted that although inflation is projected to remain below target in the near term, geopolitical conditions and policy uncertainty could contribute to increased volatility in economic activity and inflation in the short to medium term,” said the deputy governor Michael Atingi-Ego while presenting the monetary policy statement at the Bank of Uganda headquarters on December 5.
On the other hand, Dr Atingi-Ego cautioned that there are several risks to inflation forecasts. On the downside, he said inflation could be lower if the shilling exchange rate appreciates or partly due to stronger capital inflows related to oil development, global growth and inflation remain low.
On the upside, he said inflation could be higher if: global inflation, which is still above targets in several economies, reverses its declining trend due to heightened geopolitical tensions.
The upside risk is severe depreciation pressures arise from tight global financial conditions due to potential policy reversals in advanced economies, leading to capital flight to safer havens.
The other upside risk is if the geopolitical tensions intensify resulting in disrupting trade and leading to sustained increases in shipping costs or commodity prices, thereby lowering global growth and further limiting the domestic economy’s supply capacity, adding that extreme weather conditions drive food prices higher than projected.
However, Dr Atingi-Ego expressed optimism saying at the current level, the monetary policy stance remains conducive to sustainable economic growth amid price stability and supports Uganda’s socio-economic transformation.
“Future adjustments to the policy rate will be guided by income data and a continuous evaluation of risks to inform the MPC’s decision,” he said.
