BOU holds policy rate as inflation remains in check

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KAMPALA - The Bank of Uganda’s Monetary Policy Committee (MPC) kept the Central Bank Rate (CBR) unchanged at 10.25%, citing moderate domestic inflation and a stable exchange rate.

Annual headline inflation rose to 3.6% in May from 3.2% in April, driven by higher costs for healthcare, education, and transportation services, as well as solid and liquid fuels. However, inflation remains among the lowest in the region, averaging 3.2% over the past year.

Central Bank deputy governor Michael Atingi-Ego said the MPC expects inflation to remain moderate in the fiscal year 2024/25, reflecting stable demand and contained cost pressures.

“The relative stability of the Ugandan shilling against the US dollar has benefited from recent CBR increases and inflows from robust coffee exports owing to favourable international coffee prices,” he said.

The economy is projected to grow 6% in FY2023/24, despite mixed economic indicators and risks to the growth outlook. 

Atingi-Ego said private sector credit growth may weaken due to tighter domestic financing conditions, while external factors such as a weaker global economy and supply chain disruptions could impede growth.

The bank noted that rebuilding international reserves will require increased coordination of monetary and fiscal policies.

“Uganda faces decreased capital inflows, headwinds to export growth, and heavy external debt servicing partly due to rising global interest rates. This, combined with declining budget support, has resulted in declining international reserves,” he said.