The Bank of Uganda (BoU) has decided to keep its benchmark interest rate steady at 10.25%, according to a statement released by the Monetary Policy Committee (MPC) on Tuesday.
This decision aims to facilitate a further reduction in inflation to the targeted level.
Since March, Uganda’s interest rate has climbed from 10% to its current rate of 10.25%, marking the highest level in nearly seven years.
This increase comes as the country grapples with inflationary pressures and a weakened shilling, which has driven up the cost of imported goods.
In a briefing following the MPC meeting, Deputy Governor Michael Atingi-Ego reported that the nation’s inflation rate rose to 3.7% in May, up from 3.5% in April.
This increase was largely driven by higher costs in transport, healthcare, education, and fuel, though the overall rate remains below the bank’s 5% target.
The decision to hold the interest rate follows earlier hikes in March and April intended to stabilize the local currency and combat persistent inflation.
Atingi-Ego noted that services inflation increased to 6.2% from 5.4%, and inflation for electricity, fuel, and utilities rose to 9.5% from 7.4%, reflecting recent global energy price hikes and the delayed effects of the shilling’s depreciation.
Since the beginning of the year, the Ugandan shilling has depreciated by 4% against the dollar.
Previous MPC meetings attributed this decline to internal factors, such as the exit of foreign investors from the Ugandan market.
Despite the rise in inflation, Uganda’s rate remains the lowest in the East African region, averaging 3.6% in the 12 months leading to May 2024. In comparison, Kenya’s inflation increased to 5.1% in May, up from 5% in April.
Atingi-Ego highlighted ongoing uncertainties affecting the inflation outlook, including geopolitical tensions in the Middle East, potential price hikes, adverse weather impacting food supply, and production capacity constraints.
Nevertheless, Atingi-Ego affirmed that Uganda’s economy remains on track to achieve a projected growth rate of 6% for the financial year ending in June.
