The Monetary Policy Committee (MPC) of the Bank of Uganda has reduced the Central Bank Rate (CBR) by 25 basis points to 9.75%.
The Central Bank Deputy Governor, Michael Atingi-Ego, said on Monday that this is due to an improved inflation outlook.
“Inflation remains subdued, in part reflecting the unwinding of the global shocks, a stable shilling exchange rate partly due to sturdy coffee export receipts, moderate import growth, and prudent monetary policy that balanced economic growth recovery while maintaining price stability,” he said.
“Over the twelve months to September 2024, annual headline and core inflation both averaged 3.2%. Specifically, annual headline and core inflation decreased to 3.0% and 3.7% in September 2024, down from 3.5% and 3.9% in August 2024, respectively. Notably, inflation declined in September 2024, driven by lower oil prices and reduced food prices. The decline in core inflation was primarily attributed to a reduction in service inflation, particularly in passenger transport services.”
The Central Bank’s decision to cut the CBR reflects a decrease in inflation and stability of the shilling against the dollar.
The CBR had been raised to 10.25% by the Central Bank in April 2024 to tackle rising inflation and stabilize the Uganda shilling, which had not stabilized against the U.S. dollar for several months.
Central banks raise the central bank rate to combat inflation by making borrowing more costly. This discourages consumer spending and investment, helping to slow down economic activity. The goal is to stabilize prices and manage inflationary pressures.
The Bank of Uganda projects average core inflation to remain below the medium-term target of 5% over the next 12 months, supported by a relatively stable shilling exchange rate and favorable food and oil prices.