The Bank of Uganda (BoU) has retained its benchmark Rate (CBR) at 10.25 percent, marking the second consecutive monetary policy committee (MPC) meeting where the rate has been held steady.
This decision aims to manage inflation risks and keep the inflation rate within the mid-range target of 5%.
The decision to keep the CBR unchanged is influenced by the moderate rise in domestic inflation, which was lower than anticipated. This moderation is attributed to the stabilization and slight appreciation of the Ugandan shilling since March 2024.
“Domestic inflation has risen moderately, lower than previously projected, largely due to the exchange rate stabilising with a bias towards appreciation since March 2024,” said BoU’s Deputy Governor Michael Atingi-Ego.
The relative stability of the Ugandan shilling against the US dollar has been bolstered by previous CBR increases and significant inflows from robust coffee exports, driven by favorable coffee prices.
In East Africa, Uganda’s inflation remains among the lowest, averaging 3.2 percent in the 12 months leading up to May 2024.
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The inflation rate dropped to 3.3 percent in March from 3.4 percent in February due to a decrease in food inflation, which fell to -0.4 percent from 0.5 percent.
Despite the current stability, policymakers caution that inflation risks persist due to global economic factors and potential exchange rate volatility.
The BoU targets a core inflation rate of 5 percent in the medium term, with expectations that inflation will remain moderate, reflecting stable demand conditions and contained cost pressures.
“The inflation forecast has been slightly revised downwards relative to April 2024, largely due to a less depreciated shilling exchange rate. Inflation is expected to rise and average between 5% and 5.4% in the short term (12 months ahead) before stabilising around the medium-term target of 5% in the second half of 2025,” Atingi-Ego added.
Inflation has remained below the 5 percent threshold, experiencing a slight increase to 2.8 percent in January from 2.6 percent in December, driven by higher transport and food prices.
The current benchmark rate will remain in effect until the next MPC meeting in August 2024.
