The Bank of Uganda’s Monetary Policy Committee (MPC) has reduced the Central Bank Rate (CBR) by 25 basis points to 9.75% due to an improved inflation outlook.
According to Deputy Governor, Bank of Uganda, Michael Atingi-Ego, the MPC assessed that inflation is expected to remain below the target in the near term and that the risks to inflation are balanced but it acknowledges the inherent uncertainty in the outlook, which warrants a cautious monetary policy stance.
“Against this backdrop, the MPC reduced the policy rate by 25 basis points to 9.75%. The bands on the CBR remained at +/-2 percentage points, and the margins on the CBR for the rediscount and bank rates at 3 and 4 percentage points, respectively. As a result, the rediscount and bank rates have been reduced to 12.75% and 13.75%, respectively,” he added.
Atungisa-Ego reveals that Inflation remains subdued, in part reflecting the unwinding of the global shocks, stable shilling exchange rate partly due to sturdy coffee export receipts, moderate import growth, and prudent monetary policy that balanced economic growth recovery while maintaining price stability.
Over the twelve months to September 2024, annual headline and core inflation both averaged 3.2%. Specifically, annual headline and core inflation decreased to 3.0% and 3.7% in September 2024, down from 3.5% and 3.9% in August 2024, respectively.
He said inflation declined in September 2024, driven by lower oil prices and reduced food prices. “The decline in core inflation was primarily attributed to a reduction in services inflation, particularly in passenger transport services,” he said.
The Bank of Uganda projects average core inflation to remain below the medium-term target of 5% over the next 12 months, supported by a relatively stable shilling exchange rate and favourable food and oil prices.
However, inflation is expected to return and stabilise around the target in the medium term.
The inflation outlook is susceptible to risks.
“The easing of monetary policy is necessary to keep inflation on track while supporting socio-economic transformation,” adding, “Overall, the risks to the inflation outlook are balanced,”
GDP estimates for the quarter ended June 2024 by the Uganda Bureau of Statistics (UBoS) indicate that growth has been strong, with an annual quarterly real GDP growth of 6.6%.
High-frequency indicators of economic activity and business sentiments point to a continuing pick-up in economic activity.
Economic growth is still projected at 6.0-6.5% in FY 2024/25 and 7.0% in the subsequent years.
This growth trajectory is underpinned by strategic government interventions, an increase in foreign direct investment in the extractive industry, and the commencement of oil production in the FY 2025/26.