Why BoU maintained December lending rate at 9.5 percent
On the downside, research from BoU indicates that global inflation could decline faster leading to much lower imported inflation.
Bank of Uganda has maintained the Central Bank Rate (CBR) at 9.5%, Charmar News has learnt. According to the Central Bank Deputy Governor, Michael Atingi-Ego, the decision to keep the CBR unchanged reflects the Monetary Policy Committee’s assessment of the inflation outlook in light of the incoming data.
“The medium-term forecast for December 2023 shows that the inflation outlook remains unchanged compared to the October 2023 round of forecasts,” he said.
Inflation is projected to remain below 5% in the near term but return to the target in the medium term.
Atingi-Ego noted that core inflation is projected to average 2.5 to 3.5% in FY2023/24, up from 2 to 3% in the October 2023 forecast round.
The inflation outlook is, however, subject to elevated risks. On the upside, the current geopolitical conflicts could escalate and feed into higher international oil prices passing through to domestic pump prices and renewing supply chain disruptions.
On the downside, research from BoU indicates that global inflation could decline faster leading to much lower imported inflation.
In addition, economic growth is projected at 6% in FY 2023/24 and increase to between 6% and 7% in the medium term.
“The growth is, however, subject to uncertainties, including slower than expected global and regional growth; a resurgence of supply chain distortions if the geopolitical tensions escalate, tighter fiscal policy in part due to unfavorable global financial markets which could restrict government expenditure, tighter credit conditions constraining household consumption and private sector investments,” Atingi-Ego explained.
He however said although the outlook for both inflation and economic growth is favorable, the MPC noted that inflation has bottomed out, with significant uncertainties on the horizon.
“Therefore, keeping the CBR unchanged is necessary to anchor inflation around the target in the medium term, while at the same time supporting growth in private sector investment and social-economic transformation,” he added.
