Bank of Uganda keeps base lending rate at 9.75% amidst rapid growth

February 7, 2025 in Finance, Policy by Editor

BoU says economic growth is still projected at six to 6.5 percent during financial year 2024/25 and seven percent in the outer years, supported by a stable macroeconomic environment, foreign direct investment towards the extractive sector, strategic government interventions aimed at wealth creation, increased agricultural production, and anticipated oil revenue.

Bank of Uganda’s Monetary Policy Committee (MPC) has decided to maintain the Central Bank Rate (CBR) at 9.75 percent as the outlook for annual headline and core inflation remains within manageable levels amidst sustained economic growth.

The CBR bands stay at +/-2 percentage points, and the rediscount and bank rates remain at three and four percentage points above the CBR respectively. The rediscount rate is 12.75 pc and the bank rate is 13.75 pc.

During the 12 months up to January 2025, annual headline and core inflation averaged 3.4 percent and 3.8 percent respectively. However annual and core inflation in January rose to 3.6 percent and 4.2 percent from 3.3 percent and 3.9 percent in December 2024, mainly driven by services, particularly in passenger transport fares. BoU’s  inflation targeting policy aims to keep the average annual core inflation rate at or below 5% over the medium term.

According to its latest policy statement, despite the seasonal rise in food prices, near-term inflation appears well contained. However, the short-to medium-term outlook is more uncertain than usual, with risks largely stemming from the external environment. BoU forecasts that the average core inflation will be between four percent and five percent in 2025.

The Committee says economic activity continues to strengthen, and business confidence remains positive despite headwinds from the challenging global environment as well as constrained private sector credit growth. According to the Bureau of Statistics, real GDP growth in the first quarter of 2024/25 was 6.7 percent, up from 6.2 percent in the fourth quarter of 2023/24 and 5.6 percent in the first quarter of 2023/24, driven by a significant recovery in industrial activity.

Signed by Michael Atingi-Ego, the BOU Deputy Governor, the statement reads in part: ‘Going forward, economic growth is still projected at six to 6.5 percent during financial year 2024/25 and seven percent in the outer years, supported by a stable macroeconomic environment, foreign direct investment towards the extractive sector, strategic government interventions aimed at wealth creation, increased agricultural production, and anticipated oil revenue’.

However there is also some uncertainty surrounding this growth outlook posed by unexpected adverse weather conditions, the need for more budget financing due to reduced external flows for projects, global developments that may affect trade and supply chains, as well as global financial conditions that might directly affect Uganda’s economy.

On the other hand, growth can also pick up with increased FDI in the extractive sector together with government interventions and accommodative monetary policies that boost growth expectations.