BoU raises CBR to 7.5 percent in June
KAMPALA– The current global inflationary pressures have forced the Bank of Uganda [BoU] to raise the Central Bank Rate [ CBR ] by 1 percentage point to 7.5 percent, from 6.5 percent in April, further warning that his institution would continue to raise the CBR based on the global economic outlook.
According to BoU Deputy Governor, Michael Atingi-Ego, the CBR was raised to contain supply and demand imbalances, caused by the ongoing Russia-Ukraine conflict that has resulted in the increase in the prices of commodities.
“The worsening economic outlook, uncertainty, and risks ahead motivated the MPC [Monetary Policy Committee] to tighten monetary policy to contain demand pressures until supply catches up,” he said.
He said BoU would continue to raise the CBR until inflation is firmly contained around the medium-term target.
Atingi-Ego: “BoU will phase out the remaining targeted credit relief measures for the education and hospitality sectors on September 30, 2022.”
Covid-19 Liquidity Assistance Program [CLAP] for managing potential liquidity risks arising from the pandemic as well as the restriction on payment of dividends and other discretionary distribution of supervised financial institutions expired on May 31, 2022, he said.
Atingi-Ego while reading the Monetary Policy Statement [MPS] on Thursday said inflation was increasing rapidly and spreading broadly across the basket of consumer goods and services, even though he said bumper crop harvests could lead to lower food prices.
He said the annual inflation headline and core inflation rose to 6.3 percent and 5.1 percent in May 2022 from 2.7 percent and 2.3 percent in January 2022 respectively, further noting that the prices of essential commodities such as cooking oil, soap, food, fuel, and transportation have risen sharply.
He mentioned that the supply and demand imbalances were caused by the Covid-19 pandemic and heightened by the Russian-Ukraine conflict are the underlying sources of broader price pressures.
He said the adverse global economic developments and higher inflation have diminished the prospects for domestic growth which is now projected in the range of 4.5 -5.0 percent in 2022, which is lower than the previous projection of 5.5-6.0 percent in April 2022.
“Nonetheless, in the medium-term, the economy will grow at 6.7 percent supported by public and private investments in the oil sector,” he said, adding that weaker domestic demand and tighter financial conditions would constrain investments.
He said risks to the growth outlook are; weaker global growth, escalation of geopolitical conflicts, persistent supply chain disruptions, heightened global economic uncertainty and inflation.
The downside risks, Atingi-Ego, said are dampening consumer confidence, heightening exchange rate volatility, and prolonging weak growth in private sector credit.
Particularly he said a stronger tightening of monetary conditions by advanced economies aiming to control inflation could intensify portifolio outflows from frontier markets like Uganda, thereby weakening the shilling exchange rate.
https://thecooperator.news/bou-holds-cbr-at-6-5-percent-for-april-2022/
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