The Bank of Uganda has increased its key policy rate, the Central Bank Rate (CBR) to 8.5 percent from 7.5 percent to contain the rising inflation and to maintain stability of the economy.
In the special sitting of the Monetary Policy Committee (MPC) held Tuesday, the Bank of Uganda officials said while inflationary pressures are likely to be temporary, the MPC assessed that a markedly low policy rate is needed to stabilize inflation around the target of 5 percent.
Releasing the Monetary Policy Statement for July, the BoU deputy governor, Dr Michael Atingi-Ego said: “Inflation continue to rise largely influenced by the external cost pressures steming from higher global food and energy prices, persisting global production and distribution challenges as well domestic rising food prices due to dry weather across the country.”
Dr Atingi-Ego explained that the rising food and energy prices intensified by a weaker Uganda shilling, have worsened the inflation outlook for the remaining part of 2022 and into 2023. The headline and core inflation are now forecast to average to 7.4 percent and 6.3 percent, respectively, in 2022 slightly higher than the 7.2 percent and the 6.1 percent that were projected in the June 2022 forecast round.
He further stated that inflation is forecast to peak in the second quarter of 2023 before gradually declining to stabilize around the medium term target of 5 percent by mid-2024.
Speaking on the downside of the inflation to the broad economic risk, he said weaker domestic consumption and investment as well as higher inflation reduces consumer’s real income and tighter financial conditions constraining private access to funding.
“Escalation of global inflationary pressure eases much faster than currently assumed, resulting in decline in imported inflation,” he said.