Bank of Uganda has lowered the central bank rate from 10% to 9.5% as a result of the lowest inflation rate the country has experienced in the past years.
According to the central bank’s Monetary Policy Committee, the new rate was arrived following a deflation of energy, fuel and utility costs.
“After peaking at 10.7% in October 2022, inflation has steadily decreased to below 5%, declining faster than expected. Annual headline and core inflation dropped to 3.9% and 3.8% in July 2023 from 4.9% and 4.8% in June 2023, respectively,” the bank noted.
“Similarly, food crops inflation declined to 9.3% in July from 12.3% in June 2023. The deflation of energy, fuel, and utility costs was -1.6% in July from -3.1% in June 2023 and services inflation averaged 3.1% from April to July 2023,” the bank added.
Analysts observed that the decline in inflation was due to tighter monetary and fiscal policies, strengthening of the shilling exchange rate, lower energy and food prices, improved global supply chains, and reduced domestic demand.
According to BoU, the downward inflation trend is expected to continue in the coming months due to lower international food and fuel prices, better agricultural supply, and decreasing inflation expectations.
“Although global inflation remains relatively high, it is getting closer to the targets set by central banks in advanced economies. This international trend could help reduce domestic inflation pressures,” the bank said.
Despite predictions that advanced economies will likely maintain tight monetary policies that might cause currency volatility with foreign investors in local markets seeking high returns, the exchange rate is expected to remain stable.
According to the bank, Uganda’s economy has demonstrated resilience and has been recovering well despite the uneven global growth environment with estimated annual growth of 5.3% in 2022/23.
The bank also said the economic growth is expected to recover gradually, ranging from 5.0% to 6.0% in 2023/24.
“Private sector consumption, investments in extractive industries, and improved exports are anticipated to drive this recovery,” the bank noted.
However, the central bank said it would continue to closely monitor economic developments and inflation prospects “to take appropriate actions for sustainable macroeconomic stability.”
Uganda has also been applauded for its progress in strengthening anti-money laundering laws and countering the financing of terrorism.
