The Monetary Policy Committee (MPC) has maintained the Central Bank Rate (CBR) at 9.5%.
According to Michael Atingi-Ego, Deputy Governor, Bank of Uganda, the monetary policy stance is consistent with the current assessment of the inflation and growth prospects and remains supportive of socio-economic transformation.
He revealed that the incoming both headline and core inflation rose in January 2024 to 2.8% and 2.4%, from 2.6% and 2.3% in December 2023, respectively.
However, he said inflationary pressures remain subdued reflecting the continuing vanishing effect of supply-side shocks, declining inflation around the world, and tight monetary and fiscal policies.
“In addition, improved domestic food supply at the back of favourable weather conditions has driven down food inflation. A favourable balance of payments and tight monetary policy have also helped to stabilize the exchange rate and this has reduced stronger domestic inflationary pressures,” Atingi-Ego noted.
He noted that the inflation forecasts have been revised up slightly in the short term (12-month horizon) in light of the relatively stronger exchange rate depreciation in the recent past but are projected to remain below the medium-term target of 5%.
Inflation is projected to stay around 3% through the first half of 2024, broadly reflecting stable demand conditions and the easing in global price pressures which are expected to continue to flow through to domestic prices over time.
He explained that core inflation is projected to rise to between 4.5%-5.0% in FY 24/25 and to remain around 5% in the medium term.
The Deputy Governor stated that the economic growth continues to pick up, in part reflecting the waning drag on growth from past tight monetary and fiscal policies.
The recently released quarterly GDP by the Uganda Bureau of Statistics (UBOS) for the first quarter of FY2023/24 indicates a GDP growth of 5.3% primarily driven by growth in household expenditure.
The high-frequency indicators of economic activity for December 2023 suggest continued economic growth recovery in FY2023/24, with growth projected at 6%, similar to the December 2023 projection.
Economic growth in the outer years is projected in the range of 6.5%-7%. Growth will continue to be supported by the recovery in external demand as well as the low inflationary environment, which has boosted a recovery in household real incomes, stimulating consumer spending.
In addition, investment expenditure continues to be supported by the strengthening activity in the oil sector.
While the economy is evolving largely as projected in the December 2023 round of forecasts, Atingi-Ego says considerable uncertainty remains.
“Overall, the risks to the outlook for inflation continue to be tilted to the upside. Therefore, the MPC decided that keeping the CBR unchanged was necessary to anchor inflation around the target in the medium term,” he explained.
Consequently, the CBR was maintained at 9.5%, the bands on the CBR at +/-2 percentage points and the margins on the CBR for rediscount and bank rates at 3 and 4 percentage points, respectively.
As a result, the rediscount and bank rates will remain at 12.5% and 13.5%, respectively.