BoU Increases Central Bank Rate in an Effort to Fight Inflation
-
Loading... - Kanomi Hassan
- 14 Jun 2022
- 258 Views
- 0 Like
- 0 Comment
Bank of Uganda raised the Central Bank Rate (CBR) by a percentage point on Thursday to 7.5 per cent, in an effort to combat rapidly increasing inflation.
While addressing a press briefing in Kampala, Michael Atingi-Ego, the Deputy Governor at the Bank of Uganda, told reporters that inflationary pressure had reached 6.3 per cent in May, up from 4.9 per cent the previous month. This represents the biggest jump in inflation Uganda has seen in five years, necessitating the tightening of the monetary policy to calm prices.
The Central Bank Rate had been kept at 6.5 per cent since June 2021, when inflation remained below the target of 5 per cent.
In its Monetary Policy Committee statement, Bank of Uganda said that while the inflationary pressure are likely to be temporary, the worsening economic outlook and risks ahead have motivated a revision in the CBR to contain demand pressures amid increasing demand versus subdued supply.
Bank of Uganda also announced that “it will continue to raise the CBR until inflation is firmly contained”.
Dr Atingi-Ego told reporters in Kampala that the price of essential commodities such as cooking oil and soap, food, fuel and transportation had risen sharply.
He said supply vs demand imbalances caused by the COVID-19 pandemic and intensified by the Russia-Ukraine conflict are the main underlying causes of the broader price pressures.
“The weakening of the Uganda shilling against the US dollar, coupled with rising food and energy prices, have worsened the inflation outlook since the April 2022 forecast round. Higher business costs are likely to spread into consumer prices, thereby pushing inflation higher in the coming months,” he said.
Consequently, Dr Atingi-Ego said, core inflation is now forecast to average 6.1 per cent in 2022, which is higher than earlier projections.
The Bank projects inflation to peak in the second quarter of 2023, before gradually declining to the medium-term target of 5 per cent by mid-2024.
However, Dr Atingi-Ego warned that the inflation outlook remains significantly uncertain, with the balance of risks tilted upside. Read More…
