Dec 5, 2022

Mawazo Writing Africa

Writing about the main

Uganda’s Central Bank raises policy rate to 8.5pc as inflation bites

In a radical step, the central bank of Uganda has raised its key interest rate by one percent to 8.5 percent. It was sparked by panic over rising inflation rates and mounting pressures on the US dollar against the local currency as a result of interest rate spikes registered by developed economies.

These developments follow an abrupt Monetary Policy Committee meeting on Tuesday of the latest inflation data, signs of the local currency’s vulnerability to the US dollar and raging uncertainty over global supply chain shocks caused by the ongoing military conflict between Russia and Ukraine.

The latest a percentage Central bank rate hike (CBR) follows a 1 percent hike announced last month. Along with growing worries linked to rising commodity prices, rising interest rates linked to Treasury bills and bonds and trading patterns being charted by the local shilling against the US dollar could dominate the central bank’s radar following the monetary policy announcement.

< p>“Inflation continues to rise, largely influenced by external cost pressures from higher global food and energy prices, ongoing global manufacturing and distribution problems, as well as rising domestic food prices due to dry weather across the country… Annual food inflation is at 0.7 percent sharply increased in February 2022 to 14.5 per cent in June 2022… The MPC believes that monetary policy stance needs to be tightened further to ensure inflation returns to target over the medium term…” according to the Bank of the latest monetary policy Declaration of Uganda (BOU).

The Uganda The shilling rose around Ush30 ($0.008) against the US dollar a few hours after the policy announcement and closed at Ush3,718 against the green dollar on Tuesday conditional price shocks, but their mandate to ensure price stability remains in place. The one percent increase in the CBR seems inevitable to us in a situation of rising inflation. The government raised $1.4 trillion ($373.1 million) in the local bond market through scheduled bond auctions in June and also raised another $748 billion ($199.3 million) through an unscheduled auction of government bonds, which was carried out last month. These moves have recently caused government bond interest rates to rise and this has helped keep some offshore investors interested in this market,” said Benoni Okwenje, General Manager of Financial Markets at Centenary Bank Limited.

Government data currently shows less than 12 percent of the total stock of outstanding Treasury bills and bonds worth over $10 trillion ($2.6 billion).