Home Banking BOU Maintains 9.5 Percent Interest Rate Amidst Talks with World Bank and...

BOU Maintains 9.5 Percent Interest Rate Amidst Talks with World Bank and Government Over Loans

59
0
bou maintains 9 5 percent interest rate amidst talks with world bank and government over loans
bou maintains 9 5 percent interest rate amidst talks with world bank and government over loans
Share this News

The Bank of Uganda has decided to keep the Central Bank Rate (CBR) at 9.5 percent, despite a decrease in inflation rates during September. The CBR is a tool used by the central bank to control inflation by influencing the cost of money (commercial bank interest rates) and the flow of money into the economy.

The annual headline inflation rate fell to 2.7 percent from 3.5 percent in August, and core inflation (excluding food and energy) dropped from 3.3 to 2.4 percent, the lowest in 22 months. Despite this, BOU Acting Governor Michael Atingi-Ego pointed out potential risks such as poor agricultural output leading to high food prices, interest rate hikes, and global commodity price increases. He attributed the low inflation to reduced public spending, impacting the economy.

The downward inflation trend is expected to continue due to lower imported inflation, reduced food prices, and decreased public demand for goods and services. However, it may rise to 4 to 5 percent by the end of next year, depending on factors like agricultural output and import price changes.

Factors that could increase inflation include a drop in the foreign exchange rate, geopolitical tensions in Europe and between the West and China, and further reductions in oil production by producing countries. Dr. Atingi-Ego mentioned that as long as inflation remains controlled, the Monetary Policy Committee intends to continue easing policy rates.

According to the Uganda Bureau of Statistics, the economic outlook for the last two months has remained consistent. The second quarter of 2023 saw a real GDP growth of 5.2 percent, primarily driven by the industry and services sectors. These sectors are expected to continue growing, supported by investments in the oil and gas and mining industries, potentially reaching a 6 percent growth rate for the 2023/2024 financial year if risks do not materialize.

Deputy Governor Atingi-Ego downplayed the immediate impact of the World Bank’s statement earlier this year about halting future loans to Uganda. He stated that this year, approximately $36 million (about 135 billion shillings) of expected loans have been affected, while previously approved loans will continue under strict World Bank monitoring. Discussions between the government, represented by the Ministry of Finance, Planning, and Economic Development, and the World Bank are ongoing to resolve the situation, while alternative funding sources are being explored.