BoU Increases Key Lending Rate To 8.5% On Inflationary Pressures

BoU Deputy Governor, Dr. Michael Atingi-Ego

The Bank of Uganda (BoU), the country’s Central Bank Tuesday afternoon announced an increase in the Central Bank Rate (CBR) by 1 basis points to 8.5 percent so as to stablise inflation around the [5%] target. The CBR is a benchmark lending rate for commercial banks. This means, going forward, banks are expected to increase lending/interest rates.

BoU Deputy Governor, Dr. Michael Atingi-Ego, said inflation continues to rise, largely influenced by external cost pressures stemming from higher global food and energy prices, persisting global production and distribution challenges, as well as rising domestic food crop prices due to dry weather across the country.

The annual headline and core inflation rose to 6.8 percent and 5.5 percent in June 2022 from 6.3 percent and 5.1 percent in May 2022, respectively.

Annual food crop inflation has sharply risen 0.7 percent in February 2022 to 14.5 percent in June 2022.

According to BoU, overall, economic activity is projected to remain modest as the shocks to commodity prices, production and distribution disruptions, and global inflation continue to dim the prospects for domestic economic growth.

“Economic growth is still projected in the range of 4.5-5.0 percent in 2022 and rising slightly to 5.0-5.5 percent in 2023, in part supported by public investments,” Atingi-Ego said.

He added: “Weaker external demand, high domestic inflation and resultant tighter domestic financial conditions will constrain exports, consumption, and investment.”

He added that the June 2022 preliminary GDP estimates by the Uganda Bureau of Statistics (UBOS) indicate that the economy grew by4.6 percent in Financial Year 2021/22 from a revised growth rate of 3.5 percent the previous year.