Uganda raises policy rate to 10pc after shilling falls to all-time low

Uganda's central bank on Wednesday raised its key interest rate by 50 basis points at a special meeting called after the local shilling currency fell to an all-time low.

The decision by Bank of Uganda (BoU) to raise the central bank rate (cbr) to 10 percent follows three meetings where the rate was kept unchanged.

The Ugandan shilling is down about 3 percent against the dollar so far this year, hitting a record low of 3,955/3,965 to the US currency on February 26 before recovering some ground in recent sessions.

"The depreciation of the shilling exchange rate has triggered the need for monetary policy to be tightened," BoU Deputy Governor Michael Atingi-Ego told a virtual press conference.

He said the shilling's slide was partly caused by offshore investors pulling funds from Uganda to seek higher yields elsewhere.

The BoU has raised its inflation forecasts over the next 12 months, Atingi-Ego said.

Core inflation rose to 3.4 percent in February from 2.4 percent in January, moving closer to the bank's 5 percent medium-term target.

Atingi-Ego said the central bank's growth forecast for the fiscal year that ends in June remained unchanged at 6 percent, but that forecasts for future years had been lowered given tighter monetary policy.

The country's economy has fared better than many of its African peers in an environment of tightening global financial conditions, helped by favourable weather and improved agricultural output.

Growth has also been supported by oil sector investments, as Uganda prepares to start pumping crude commercially in 2025.

Strengthening activity in the oil sector and a decision by international financial crime watchdog the Financial Action Task Force (FATF) to remove Uganda from its "grey list" of countries subject to enhanced scrutiny could trigger foreign direct investment inflows and mitigate risks to the outlook, Atingi-Ego said.