While in a special monetary policy meeting, the Bank of Uganda announced an increase in its key policy rate, the Central Bank Rate (CBR), from 9.5% to 10%. The decision was made in response to rising inflation and to bolster the struggling local currency.
Deputy Governor Michael Atingi-Ego, speaking at a virtual briefing, highlighted the need for the rate hike, pointing to a rise in core inflation from 2.4% in January to 3.4% in February. He emphasized that while the central bank’s growth forecast for the fiscal year ending in June remains steady at 6%, projections for future years have been revised downward due to the implementation of tighter monetary policy measures.
Atingi-Ego stressed the detrimental effects of high inflation on economic growth, emphasizing the importance of tightening monetary policy to ensure sustainable growth, which is essential for socio-economic development.
In addition to addressing inflation concerns, the rate hike aims to support the local currency, which has experienced depreciation against the U.S. dollar. The Ugandan shilling has depreciated by approximately 3% against the dollar since the beginning of the year, reaching a record low of around 3,955 against the dollar as of February 26. However, recent sessions have seen a slight recovery, with the shilling now trading at approximately 3,914 against the dollar.
The decision to raise the CBR underscores the central bank’s commitment to maintaining price stability and supporting the overall health of the economy amid challenging economic conditions.
