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Bank Of Uganda Monetary Policy Committee (MPC) Statement for December 2023


1 Bank of Uganda (BoU) has issued the Monetary Policy Statement (MPS) for December 2023. What is the purpose of the MPS? • BoU, through its Monetary Policy mandate, aims at ensuring stability of prices in the economy. BoU therefore issues the MPS to communicate its Monetary policy stance signaled by changes to the Central Bank Rate (CBR).
• The CBR is a policy interest rate set to influence pricing of financial assets in the economy such as loans, mortgages, treasury bills & bonds, foreign currency etc. Ultimately, changes in the CBR affect the cost of borrowing.
• The MPS therefore communicates changes in the CBR and the rationale in fulfilment of BoU's commitment to firmly contain care inflation (change in the overall price level, excluding prices of items which change rapidly and are beyond the control of policy like food crops, oil prices and administered prices-eg. water & electricity) around the 5% target as well as account for any deviations.
2. What are the key messages regarding Uganda's inflation developments in the past few months?
Annual headline inflation increased to 26% in November 2023 from 2.4% in October 2023 with significant price increases noted in charcoal and fuel. Core Inflation remained stable at 20% in the same period.
Inflation has remained below 5% largely on account of
•Tight monetary and fiscal policies intended to curb the previously rising inflation,
• Stability of the Uganda shilling relative to other currencies,
• Good food harvests due to improved weather,
• Declining global inflation.
3. What should we expect of inflation going forward?
Core inflation is expected to remain below 5% in the coming months but return to the target within the next 2 to 3 years. These projections are however subject to risks.
• On the upside, an escalation of the ongoing geopolitical conflicts could feed into higher ail prices and consequently domestic fuel prices. Additionally, volatility in international financial markets could lead to an even weaker Uganda shilling as capital outflows are triggered further:
• On the downside, faster decline of global inflation could lead to lower inflation of imports and thus a further decline in domestic inflation. The current rains could also result into a bumper harvest, pushing down food prices even further.
4. Looking ahead, what should we expect of Uganda's Economic growth?
Economic growth is projected at 6% in FY 2023/24. This growth will be supported by continued investment in the oil and gas sector, stronger demand for exports as a result of expected higher growth in most of the Sub-Saharan African countries as well as resilient personal money transfers from abroad and tourism inflows. In addition, the current low inflationary environment will support a recovery in household income stimulating consumer spending.
The outlook for the domestic economy is however subject to uncertainties including
• Slower than expected global growth which could hamper demand for our exports,
• Revival of supply chain distortions if the geopolitical tensions escalate,
• Further weakening of the Uganda Shilling that could hurt imports for investment,
⚫Tighter borrowing conditions constraining consumption by households as well as private sector investments.
5. What decision has Bank of Uganda taken on the CBR in the December 2023 Monetary Policy Committee (MPC) meeting?
• Bank of Uganda has maintained the Central Bank Rate (CBR) at 95% in December 2023.
• Keeping the CBR unchanged is necessary to meet the 5% target in the medium term while at the same time supporting private investment and socio-economic transformation.
•Further monetary policy action will depend upon the incoming data and the evolving risks.
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