Bank of Uganda holds policy rate steady, says inflation remains subdued

Bank of Uganda maintained its benchmark lending rate for the third time this year, saying the inflation outlook over the next 12 months is largely unchanged from the last monetary policy committee meeting in April but noted that risks remain elevated.

The bank’s monetary policy committee decided to keep the central bank rate at 10%, first set in October 2018. It also voted to maintain the rediscount rate and the bank rate at 14% and 15%, respectively.

On inflation, the bank said recent consumer price index data released by the Uganda Bureau of Statistics indicates that “inflation remains relatively subdued”. Declines were recorded for both annual headline and core inflation in May, which came in at 3.3% and 4.6% — both within the bank’s medium-term target of 5%.

The monetary policy statement also pointed at recent Ubos figures indicating that the economy is on a healthy path: it grew by 6.1% in the 2018/2019 financial year, “partly as a result of strong growth in household consumption.”

The statement added: “Growth was largely supported by accommodative monetary policy stance and a resultant growth in private sector credit, fiscal impetus and multiplier effects of public infrastructure investments, ensuring strong domestic demand conditions and improved agricultural performance.”

It said downside risks to economic growth are unchanged from its previous recent assessments. These include escalating global trade tensions that “could weaken Uganda‚Äôs external position and lead to volatility in the domestic foreign exchange market” on the external scene.

Domestic risks include “weather-related constraints to agricultural production, delays in the implementation of public investment programs, and supply-side constraints to growth in the private sector [which] could dampen economic activity,” according to the statement.


How the Bank of Uganda conducts monetary policy