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Bank of Uganda raises key lending rate to 10% for October 2018

Bank of Uganda has raised its key lending rate, the Central Bank Rate, by 1 percentage point to 10 percent.

This, according to the Central Bank, was done in order to keep inflation close to the target of 5% and to maintain economic  growth.

While presenting  the October 2018 Monetary Policy Statement in Kampala on Wednesday, Bank of Uganda Governor Emmanuel Mutebile noted that rapidly rising oil prices recent months, coupled with a weaker shilling exchange rate and indirect tax increases have pushed up inflation.

On the inflation outlook, Mutebile said, “A key risk to the inflation outlook is the Shilling exchange rate, which remains vulnerable to the possibility of tighter global financial conditions as well as stronger domestic demand. The weaker shilling exchange rate combined with higher oil prices could result in a more elevated inflation trajectory.”

He revealed that the strong rebound in economic growth in financial year (FY) 2017/18 has closed the negative output gap, and with growth projected to remain robust in FY2018/19, core inflation could rise higher in the remaining part of the fiscal year.

“The economic output in the medium term (2 to 3 years) remains largely unchanged since the August 2018 Monetary Policy Committee meeting. Economic growth has been sold since the second half of 2017 supported by the global economy upturn and the easing of domestic financial conditions.”

Rising inflation

According to the statement,  the Consumer price Index data released by the Uganda Bureau of Statistics, indicates that inflation has risen since June 2018.

Core inflation rose from 0.8 per cent in June 2018 to 3.9 percent in September 2018, which is below the target of 5 percent. Headline inflation from 2.1 percent  in June 2018, to 3.8 in August 2018 but eased slightly to 3.7 per cent in September 2018 largely due to a decline in food prices.

The statement goes on to say, “The increase in core inflation was partly due to higher services prices, which rose sharply at the beginning of the financial year, reflecting the effect of the Over-The-Top (OTT) tax.

“Service inflation rose from 1.7 per cent in June 2018 to 5.3 percent in August but before easing slightly to 4.5 percent in September 2018. Higher fuel prices and strong domestic demand could push services inflation higher in the remaining part of 2018.”