KAMPALA – On October 7, 2024, the Bank of Uganda’s Monetary Policy Committee (MPC) announced a 25-basis-point reduction in the Central Bank Rate (CBR) to 9.75%. This decision reflects the country’s improved inflation outlook, driven by subdued inflation levels.
According to Deputy Governor Michael Atingi-Ego, the annual headline and core inflation rates averaged 3.2% over the past 12 months. In September 2024, inflation dropped to 3.0% and 3.7%, respectively, due to lower oil prices and reduced food prices.
“The decline in inflation is attributed to a combination of factors, including the unwinding of global shocks, a stable shilling exchange rate, moderate import growth, and prudent monetary policy,” Atingi-Ego explained.
Looking ahead, the Bank of Uganda projects core inflation to remain below the 5% target over the next 12 months. This forecast is supported by a relatively stable shilling exchange rate and favorable food and oil prices. However, inflation is expected to return to the target level in the medium term.
The MPC also noted that Uganda’s economy is growing strong, with a 6.6% annual quarterly real GDP growth rate as of June 2024. Economic growth is projected at 6.0-6.5% in FY 2024/25 and 7.0% in subsequent years, driven by strategic government interventions, increased foreign direct investment in the extractive industry, and the commencement of oil production in FY2025/26.
To support socio-economic transformation, the MPC decided to ease monetary policy. The bands on the CBR remain at +/-2 percentage points, and the margins on the CBR for the rediscount and bank rates at 3 and 4 percentage points, respectively. As a result, the rediscount and bank rates have been reduced to 12.75% and 13.75%, respectively.
“The easing of monetary policy is necessary to keep inflation on track while supporting socio-economic transformation,” Atingi-Ego stated. “Any additional changes to the policy rate will continue to rely upon the incoming data and the evolving assessment of risks to guide our decisions.”
The MPC acknowledged that risks to the inflation outlook are balanced, with potential downsides including:
- Heightened geopolitical tensions driving energy prices and freight costs higher.
- Faster shilling exchange rate depreciation.
- Extreme weather events impacting food prices.
- Stronger domestic economic growth leading to higher aggregate demand.
Upside risks include:
- Lower inflation boosting confidence and real incomes.
- Stronger global economic growth.
- Increased investment in the minerals sector.
- Favorable weather conditions yielding good food crop harvests.
