Uganda maintains tight monetary policy amid global uncertainty
Bank of Uganda Governer Dr Michael Atingi-Ego. PHOTO/FILE/MICHAEL KAKUMIRIZI
What you need to know:
- International Monetary Fund (IMF) stated that growth in sub-Saharan Africa is expected to ease to 3.8 percent in 2025 and 4.2 percent in 2026.
The Bank of Uganda (BoU) is maintaining a tight monetary policy stance due to prevailing global economic uncertainties.
The BoU's Monetary Policy Committee (MPC) has held the Central Bank Rate steady at 9.75 percent, citing "domestic and global uncertainties and elevated risks to the inflation outlook."
Bank of Uganda Governor Michael Atingi-Ego stated that the current policy is "appropriate" for maintaining inflation targets and supporting economic growth.
Uganda has made "substantial progress" in achieving price and macroeconomic stability, including reducing inflation to single digits.
The inflation outlook remains "broadly aligned" with earlier forecasts, with slightly lower near-term projections. Core inflation is expected to average between 4.5 percent and 5.0 percent in the 2025/26 financial year, converging to the 5 percent target over the medium term.
The outlook is subject to both upside and downside risks. Upside risks include stronger domestic demand, geopolitical tensions, trade restrictions, adverse weather affecting food production, and exchange rate depreciation.
Downside risks include exchange rate appreciation, weaker demand, improved agricultural output, declining global commodity and energy prices, and slower growth in major economies.
As of April 2025, Uganda's headline and core inflation edged up to 3.5 percent and 3.9 percent, respectively.
On Momday, Atingi-Ego warned of a "greater likelihood of upward pressure" on inflation in the near term.
Uganda's economic activity remains resilient despite global uncertainties, including "renewed geopolitical tensions" and "the new trade tariffs environment," with business sentiment remaining "broadly positive."
However, Atingi-Ego noted that the growth outlook is subject to downside risks, including "disruptions to global supply chains due to trade tensions," "weaker external demand," and "tighter global financial conditions."
Upside risks to growth include "accelerated investment in the extractive sector," "supportive government policies," and "stronger tourism."
"Despite strong current performance, the balance of risks to the growth outlook is tilted to the downside, reflecting potential slowdowns in major trading partners, increased uncertainty, and lower-than-expected commodity prices," Atingi-Ego said.
International Monetary Fund (IMF) African Department Director Abebe Aemro Selassie stated that growth in sub-Saharan Africa is expected to ease to 3.8 percent in 2025 and 4.2 percent in 2026, driven largely by difficult external conditions.
Selassie warned that increased trade tensions or tighter financial conditions in advanced economies could dampen regional confidence and raise borrowing costs.
The World Trade Organization (WTO) has also reported a sharp deterioration in the outlook for global trade due to "a surge in tariffs and trade policy uncertainty (TPU)."
The WTO expects world merchandise trade to decline by 0.2 percent in 2025 before posting a modest recovery of 2.5 percent in 2026.
