KAMPALA– Bank of Uganda [ BOU ]raised the indicative Central Bank Rate [CBR] to 8.5 percent for July from 7.5 percent before, as inflation rose – for the second time in a row.
They first raised it from 6.5 percent where it had been for months in June. Inflation had risen to 6.3 percent at the time. Last month it went up to 6.8 percent as announced by the Uganda Bureau of Statistics [UBOS] and the bank moved to act.
“Inflation continues to rise, largely influenced by external cost pressures stemming from higher global food and energy prices, persisting global production and distribution challenges, as well as rising domestic food crop prices due to dry weather across the country,” the banking regulator said in a statement.
“The headline and core inflation are now forecast to average 7.4 percent and 6.3 percent, respectively in 2022, slightly higher than the 7.2 percent and 6.1 percent that were projected in June,” they added.
BOU will continue to watch inflation as the months go by, and this could lead to further raises.
The CBR has been used since 2011 when election spending ballooned Uganda’s inflation to a record 30.5 percent in October that year. The CBR is an indicative figure that guides the Bank Rate – the one at which commercial banks can borrow from the central bank.
Raising the CBR means commercial bank lending rates will go up to reduce lending and bring down the amounts of money in circulation to lower rising inflation.
The central bank’s target for inflation is under 5 percent. After they lowered it to 6.5% recently, the main commercial banks slashed their prime lending rates (PLR) to 16 percent for their best borrowers. After the CBR rose to 7.5 percent last month, several raised their PLRs to 17 percent.
The expectation now is that interest rates for banks will now go up to at least 18% for the best borrowers.
As way to further reduce cash in circulation, BOU announced it had raised the Cash Reserve Requirement for all commercial banks by two percentage points to 10%, meaning they will have even lower amounts to lend from.
“The (Monetary Policy Committee) considers that the monetary policy stance will have to be tightened even further so as to ensure that inflation eases back to target in the medium term,” added Michael Atingi-Ego, acting BOU Governor.
The medium-term outlook is friendlier, though, he added in the statement.
“Inflation is forecast to peak in the second quarter of 2023 before gradually declining to stabilize around the medium-term target of 5 percent by mid-2024.”
Uganda’s economy has been hit hard in the last two years, first by the global Covid-19 pandemic that forced rolling nationwide lockdowns, and more recently by the war in Ukraine.
Fuel prices have shot up by over 70% countrywide, leading to a sustained rise in prices for many commodities. Imported inflation worsened the situation as key source countries suffered the effects of the Russian invasion of its neighbor.
Experts said this impact will be felt for many more months to come as there are no signs of the war abating any time soon.
Bad weather also added to Uganda’s woes as even locally produced food crops suffered lower harvests than normal.
BOU said economic growth rose slightly to 4.6% in the 2021/22 Financial Year which ended on June 30, from a lower 3.5% in the previous year.
The bank maintained optimism this growth would stay level under the circumstances.
“Economic growth is still projected in the range of 4.5-5.0 percent in 2022 and rising slightly to 5.0-5.5 percent in 2023, in part supported by public investments,” it said.
A weaker shilling is expected as high global prices affect the import-dependent Ugandan economy.
“Higher prices in the global markets could further increase the demand for foreign exchange [US$ in particular], which may further weaken the shilling.”
https://thecooperator.news/bou-raises-cbr-to-7-5-percent-in-june/
Buy your copy of theCooperator magazine from one of our countrywide vending points or an e-copy on emag.thecooperator.news
Views: 0
-
-
-
-
