On February 6, 2024, Bank of Uganda released its Monetary Policy Statement for February 2024. In the document, the bank announced its decision to maintain the Central Bank Rate (CBR) at 9.5%. This rate has remained unchanged since August 2023. The Monetary Policy Committee (MPC) justified its decision by emphasising the necessity of anchoring inflation around the target in the medium term.
The medium-term target for inflation is set by the Bank of Uganda and serves as a benchmark for managing price stability in the economy. This target rate represents the desired level of inflation over a horizon that extends beyond the immediate future but is shorter than the long term, usually spanning several months to a few years. Inflation in Uganda has remained below 5%, rising slightly to 2.8% in January 2024 from 2.6% in December 2023, driven by increases in transport and food prices.
“Inflation forecasts have been slightly revised upwards in the short term (12-month horizon) due to the relatively stronger exchange rate depreciation in the recent past, but they are projected to remain below the medium-term target of 5%,” stated Michael Atingi-Ego, Deputy Governor of the Bank of Uganda.
In the Monetary Policy Statement, the Bank of Uganda indicated that by are aiming to anchor inflation around the target in the medium term, they seek to maintain price stability and ensure that inflation remains within the desired range over the specified timeframe, mitigating the adverse effects of inflation on the economy, such as eroding purchasing power.
According to the Bank of Uganda, the proposed inflation rate is projected to stay around 3% through the first half of 2024. This suggests that the central bank expects inflation to remain relatively low and stable in the near term, aligning with its objective of promoting price stability. Additionally, the bank mentions that inflation is projected to remain below the medium-term target of 5%.
By keeping inflation within the target range, the central bank can help businesses and consumers plan for the future with confidence, mitigate uncertainty, and support long-term investment decisions.
The Bank of Uganda opted to maintain the Central Bank Rate (CBR) at 9.5% due to a combination of factors contributing to stable inflation and economic conditions, as disclosed in its recent Monetary Policy Statement. Despite a slight increase in headline and core inflation rates, inflationary pressures remained subdued, influenced by diminishing supply-side shocks, declining global inflation trends, and strict monetary and fiscal policies.
Additionally, improved domestic food supply and a stable exchange rate further alleviated inflationary pressures. Projections indicated that inflation would remain below the medium-term target of 5%, with inflation expected to hover around 3% in the first half of 2024.
Economic growth, fueled by increased household expenditure and external demand, also supported the decision. However, uncertainties in global commodity prices, financial markets, and geopolitical tensions posed risks to the inflation outlook. Nonetheless, the Monetary Policy Committee (MPC) deemed it necessary to keep the CBR unchanged to anchor inflation around the target in the medium term, maintaining stability and supporting economic transformation efforts.