By Spy Uganda
The Bank of Uganda raised interest rates for a third straight meeting to rein in inflation and boost the shilling.
Policy makers facing the most significant cost pressures in six years lifted the benchmark rate to 9% from 8.5%. That takes the increase in borrowing costs to 250 basis points since June.
“The inflationary pressures are still with us and there’s need to do everything possible to bring inflation back to target of 5%,” Deputy Governor Michael Atingi-Ego said Friday in the capital, Kampala. “Going forward, the MPC considers that the monetary policy stance will have to be tightened even further if inflationary pressures persist to ensure that inflation reverts to its medium-term target of 5%.”
Annual core inflation which excludes food and energy, exceeded the central bank’s 5% medium-term target for a third successive month in July, accelerating to 6.3% from 5.5% in June. Headline price growth quickened to 7.9% from 6.8%.
Supply shortages and a slide in the shilling spurred by foreign investors exiting risky assets around the globe has fanned inflation. The shilling has depreciated about 7% against the US dollar this year. By 1:09 p.m., the local currency gained 1% to 3,774.31 per dollar.
The rate hike means that Uganda has one of highest differentials between inflation and policy rates among more than 50 economies tracked by Spy Uganda, making its assets more attractive to investors.
The MPC sees economic growth at 2.5% to 3% this year, rising to 5% and 6% in 2023.
“Overall, economic growth prospects have been dimmed further” with higher inflation, Atingi-Ego said.
Harvard University’s Growth Lab projects Ugandan gross domestic product will expand 7.48% through 2030 — the world’s fastest-growing economy in the period.
