Bank of Uganda keeps base rate at 9.5% to support surge in GDP growth

December 14, 2023 in Finance, Policy by Editor

The MPC believes that the current investment activities in the oil and gas sector, higher regional demand for exports at the back of expected higher growth in most of the Sub-Saharan Africa countries, resilient remittances and tourism inflows are expected to support Uganda’s economic growth.

The Bank of Uganda Monetary Policy Committee has decided to maintain the Central Bank Rate (CBR) at 9.5 pc because the country’s near term economic growth prospects remain broadly unchanged since the MPC last met.

The CBR is the interest rate at which the central bank lends money to domestic banks, often in the form of very short-term loans. At the end of December last year it stood at 10 pc.

Deputy BoU Governor and MPC Chair, Michael Atingi-Ego said, “Although the domestic monetary conditions remain tight, the current investment activities in the oil and gas sector, higher regional demand for exports at the back of expected higher growth in most of the Sub-Saharan Africa countries, resilient remittances and tourism inflows are expected to support economic growth.”

He said, “The low inflationary environment will support a recovery in household real incomes, spurring consumer spending. Indeed, the Composite Index of Economic Activity (CIEA), a high frequency indicator of economic activity grew strongly at an annualized rate of six percent in the months to October 2023. Economic growth is projected at six percent in financial year 2023/24 and increase to between six percent and seven percent in the medium term.”

According to the MPC, inflation continues to be moderate, reflecting the current tight monetary and fiscal policies, good crop harvests due to the improved weather conditions, relative exchange rate stability as well as the declining global inflation. However headline inflation increased slightly from 2.4 pc in October to 2.6 pc during November while core inflation remained unchanged at two percent.

Atingi-Ego said, “The decision to keep the CBR unchanged reflects the MPC’s assessment of the inflation outlook in light of the incoming economic data. The medium term inflation forecast for December 2023 shows that the inflation outlook remains unchanged compared to the October 2023 round of forecasts.”

The growth outlook is however subject to uncertainties, including slower than expected global and regional growth; a resurgence of supply chain distortions, if the geo-political tensions escalate, tighter fiscal policy in part due to unfavourabe global financial markets, which could in turn restrict government development expenditure , tighten credit conditions, constraining household consumption and private sector investments.