The Bank of Uganda has raised its key rate, the Central Bank Rate (CBR), from 7.5% to 8.5% to contain rising inflation and maintain stability in the economy .
At the special session of the Monetary Policy Committee (MPC) held on Tuesday, Bank of Uganda officials said that while inflationary pressures are likely to be temporary, the MPC estimated that a Significantly low policy rate is needed to stabilize inflation around the 5% target. .
In issuing the monetary policy statement for July, BoU Deputy Governor Dr Michael Atingi-Ego said: “Inflation continues to rise, largely influenced by external cost pressures resulting from rising global food and energy prices, persistent problems of global production and distribution as well as national challenges. rising food prices due to dry weather across the country.
Dr Atingi-Ego explained that rising food and energy prices, intensified by a weaker Ugandan shilling, have worsened inflation prospects for the rest of 2022 and into 2023. Inflation overall and core should now average 7.4% and 6.3%. , respectively, in 2022, slightly higher than the 7.2% and 6.1% that were projected during the June 2022 round of forecasts.
He further stated that inflation is expected to peak in the second quarter of 2023 before gradually declining to stabilize around the medium-term target of 5% by mid-2024.
Speaking on the downsides of inflation in relation to general economic risk, he said that weak consumption and domestic investment as well as rising inflation reduced consumers’ real income and that weaker financial conditions stringent restrictions restricted private access to finance.
“The escalation in global inflationary pressure is abating much faster than currently assumed, driving down imported inflation,” he said.