Bank of Uganda Raises Central Bank Rate to 10%

Bank of Uganda at its Monetary Policy Committee (MPC) meeting held on October 6, 2022, increased the Central Bank Rate (CBR) by one percentage point to 10 per cent.

According to Michael Atingi-Ego, the Deputy Governor Bank of Uganda, the MPC has increased the CBR by one percentage point to 10 per cent, and the band on the CBR remains at +/-2 percentage points.

“The margins on the CBR for the rediscount and bank rates will remain at 3 and 4 percentage points. Consequently, the rediscount and bank rates will be 13 per cent and 14 per cent, respectively,” he said

He noted that a combination of global factors like the recent drought and a weaker shilling to U.S. dollar exchange rate have also driven inflation to the highest level recorded since 2012 and deteriorated the inflation outlook.

The annual headline inflation rose to 10 per cent in September 2022 from 9 per cent in August 2022.
The Annual core inflation, which excludes the volatile food and energy prices, rose to 8.1 per cent in September 2022 from 7.2 per cent in August 2022.
Annual electricity, fuel and utilities inflation, which had been increasing since the beginning of the year, declined to 18.7 per cent in September 2022 from 19.6 per cent in August 2022, offering some relief against the price pressures.

“In the coming months, headline inflation is forecast to rise and average around 7.3 per cent in 2022, and between 8 per cent to 10 per cent in 2023, before declining back to around 5 per cent in 2024,” the Deputy Governor said.
According to him, the outlook for inflation is highly uncertain as several risks lie ahead. The balance of risks is tilted upwards.
He noted that the entrenchment of higher inflation expectations include; escalation of geopolitical tensions and the associated supply chain disruptions, stronger monetary policy tightening by major central banks further weakening the exchange rate, and the impact of adverse weather conditions on food production.

The Deputy Governor said inflation pressures are projected to peak in the first half of 2023, as COVID-19 effects wane, supply chain pressures ease and as a result of the impact of recent policy actions.
He revealed that the recent increases in the CBR coupled with fiscal tightening have had somewhat an indirect effect in stabilising the shilling exchange rate, which is expected to cushion the inflationary pressures, adding, “growth in private sector credit and monetary aggregates have moderated, signalling the eventual impact on aggregate demand. Nonetheless, inflationary pressures remain elevated”.

He reiterated BoU’s commitment to rein in inflation and undertake the necessary measures to restore inflation to the target of 5 per cent in the medium term.