Bank of Uganda Raises Central Bank Rate to 10% Amidst Inflation Concerns

In response to mounting inflationary pressures and a weakening currency, the Bank of Uganda (BoU) has announced a significant policy shift, raising the Central Bank Rate (CBR) to 10% in its March 2024 monetary policy statement.

The decision comes as both headline and core inflation surged to 3.4% in February 2024, marking a notable increase from previous months.

Despite the economy grappling with a downward revision in growth projections, the primary concern remains containing inflationary forces to align with the central bank's medium-term target of 5%.

According to economic analysts, the recent depreciation of the Uganda Shilling, especially evident since November 2023 and exacerbated by a sharp decline in February 2024, has heightened inflationary risks.

Additionally, the specter of higher oil prices and anticipations of elevated inflation further underscore the need for preemptive monetary measures.

Dr. Jane Kamya, Chief Economist at the Bank of Uganda, emphasized, "Given the higher risks to the inflation outlook, raising the CBR is necessary to contain the future path of prices and meet the 5% target in the medium term."

While the growth forecast for the economy has been tempered, with projections revised downwards to a range of 5.5% to 6.5% for the fiscal year 2023/24, various factors are expected to influence growth dynamics.

Strengthening activity in the oil sector and Uganda's removal from the Grey List, facilitating higher Foreign Direct Investment, are anticipated to support economic expansion.

Challenges persist, including the potential dampening effect of higher inflation on household incomes and spending, elevated import costs for raw materials, and concerns over tax revenue underperformance amidst a sluggish external demand recovery.