Bank of Uganda hikes CBR to 17%

By Samuel Sanya

Bank of Uganda (BoU) has downgraded Uganda’s economic growth projections to 5% from 5.8% for 2015/16 financial year due to exchange rate depreciation and strong base effects of low inflation in September 2014.

A strong base effect of low inflation means that inflation figures are likely to rise quicker in coming months despite modest increases in prices of services and commodities.

This is how it works. If the price of an orange increases by sh20 in the month of October 2015 to sh200 from sh180; the percentage increase in the price will be 11.1%.

However, a similar sh20 increase in the price of a mango to sh80 from sh60 leads to a higher 33.3% increase. This is simply because sh60 is smaller than sh180. Bank of Uganda warns that the situation with the mangoes will be reflected in the inflation data.

“In addition the projected El Nino weather conditions could result in higher food crop prices in Q4-2015 and Q1-2016. Real GDP growth in FY 2015/16 is projected at 5% down from an earlier projection of 5.8%,” BoU governor Prof. Emmanuel Mutebile told reporters at the Central Bank headquarters.

“Nevertheless to ensure that medium term inflation converges towards the BOU's target of 5%, a further tightening is warranted.  Therefore, the BOU will raise the Central Bank Rate (CBR) by 1% to 17%,” he added.

Prof. Mutebile explained that the downward revision in economic growth was necessitated by the subdued global growth, which will reduce demand for Uganda’s exports.


The shilling was trading at 3,685.39/3,695.39 buying and selling respectively on average at most commercial banks at noon marginally weaker than 3,682.7/3,692.7 in the first trading session.

The shilling has been relatively stable in the months September and October due to low dollar demand. This resulted in a sh50 improvement in the local currency in the two months.

Razia Khan, the Standard Chartered Bank head of research for Africa noted that the hike in the CBR had been expected.
Inflation rose in September 2015 with annual headline inflation edging up to 7.2% from 4.8% in August 2015. Annual core inflation also rose to 6.7% in September 2015 from 5.5% in August 2015.