Bank of Uganda cuts base rate from 10.25% to 10% despite inflation bump

August 9, 2024 in Finance, Policy by Editor

Atingi-Ego said there are signs that the continued recovery in real incomes and rising confidence are beginning to pass through to stronger consumption despite the tight monetary policy.

During mid-week Bank of Uganda (BoU) reduced its Central Bank Rate (CBR) from 10.25 pc to 10 pc, in light of the current economic recovery after a recent slowdown caused by external shocks. Both annual headline and core inflation also remained under the 5 pc monetary policy ceiling.

Michael Atingi-Ego, the BoU Deputy Governor and chair of the latest proceedings of the Monetary Policy Committee (MPC) said, “GDP growth picked up in the last two quarters of financial year 2023/24 with an average growth of 6.7 pc year-on-year compared to a growth of 5.3 pc in the first two quarters of the financial year. The pickup in growth was broad-based across all sectors. There are signs that the continued recovery in real incomes and rising confidence are beginning to pass through to stronger consumption despite the tight monetary policy.”

The relative stability of the shilling against the US dollar has benefited from the recent CBR increases and inflows from coffee exports owing to favourable international coffee prices. Nonetheless, both annual headline and core inflation edged up slightly to four percent in July 2024 from 3.9 pc and 3.8 pc in June respectively.

He said over the medium term economic growth is projected to be above seven percent supported by stronger private sector investment and government intervention, especially in agriculture and global economic growth recovery. However, he conceded that internationally, there remains the continuing risk of higher commodity prices and disruption to trade flows associated with developments in the Middle East and other significant geopolitical uncertainties, which could lead to weaker global economic activity.

He said economic growth could also be lower if the growth in private sector credit slows further due to higher costs of borrowing and higher domestic borrowing by the government. “Given the balance of risks, the MPC noted that a cautious easing of monetary policy is warranted in support of the objectives of containing inflation around the five percent policy target and economic growth to levels consistent with socio-economic transformation,” Atingi-Ego said.