The Bank of Uganda (BoU) has opted to maintain the Central Bank Rate (CBR) at 9.75%, citing stable inflation trends and a strengthening economy. Additionally, the rediscount rate and bank rate were also kept unchanged at 12.75% and 13.75%, respectively. This decision was made during the latest meeting of the Monetary Policy Committee (MPC).
The BoU noted that domestic inflation has evolved as projected, supported by monetary policy actions and reforms in the Interbank Foreign Exchange Market. These measures have deepened the foreign exchange market and contributed to exchange rate stability. Additionally, favorable food and energy prices, along with relatively low global inflation, have helped contain inflationary pressures.
Over the twelve months leading up to January 2025, Uganda’s annual headline and core inflation averaged 3.4% and 3.8%, respectively. However, in January 2025, annual headline inflation edged up to 3.6% from 3.3% in December 2024, while core inflation rose to 4.2% from 3.9%. The increase was primarily attributed to higher services inflation, particularly in passenger transport.
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Despite the seasonal rise in food prices, near-term inflation remains under control. However, the medium-term outlook is uncertain due to potential external risks. The BoU projects that average annual core inflation will range between 4.0% and 5.0% in 2025, stabilizing at the target level over time.
Several risks could push inflation higher than expected. These include stronger domestic economic growth driven by increased investment in the extractive sector and effective government programs, escalating geopolitical conflicts that could disrupt global supply chains, and extreme weather conditions affecting agricultural output. Additionally, a significant appreciation of the US dollar against major currencies could exert pressure on the Ugandan shilling, raising import costs and fueling inflationary risks.
Conversely, inflation could be lower than projected if strong capital inflows lead to an appreciating exchange rate or if global oil prices decline due to a slowdown in global trade.
Economic growth for FY 2024/25 is projected at 6.0%-6.5%, with expectations of reaching 7.0% in subsequent years. The expansion is supported by a stable macroeconomic environment, foreign direct investment in the extractive sector, strategic government interventions, increased agricultural production, and anticipated oil revenue.
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However, risks to the growth outlook remain tilted to the downside. Potential threats include adverse weather conditions impacting food production, tight financing conditions affecting budget implementation, and disruptions in global trade and supply chains. In contrast, accelerated investment in extractive industries and supportive government policies could lead to stronger-than-expected economic performance.
The committee emphasized that future adjustments to the CBR will be data-driven and based on ongoing risk assessments.