Global uncertainty sways central bank to stick to 9.75% base rate

May 14, 2025 in Finance, Policy by Editor

The upside factors for Uganda’s economy include accelerated investment in the extractive sector, specifically oil and gas together with appropriate supportive government policies and an accommodative domestic financial conditions.

Uganda’s inflation remains within manageable levels, but heightened global risks have swayed the Bank of Uganda Monetary Policy Committee (MPC) which sat on Tuesday, to maintain the Central Bank Rate (CBR) at 9.75 pc. During the same period in 2024, the CBR was at 10.25 pc

The MPC noted that over the past year, the annual headline inflation averaged 3.4 percent, remaining below the medium term target of five percent. This subdued inflation has been supported by prudent monetary policy a stable exchange rate, and global disinflation and favourable energy and food prices.

BoU Governor and MPC chair, Michael Atingi-Ego said, “Despite strong performance, the balance of risks to the growth outlook is tilted to the downside, reflecting potential slowdown in major trading partners, increased uncertainty and lower-than-expected commodity prices. In light of the prevailing domestic and global uncertainties and the elevated risks to the inflation outlook, the MPC decided to maintain the CBR at 9.75 pc.”

However the MPC concedes economic activity remains resilient despite the global uncertainties. The growth projection for financial year 2024/25 remains at between six and 6.5 percent with expectations of reaching seven percent in the outer years.

This outlook is supported by improved agricultural and industrial activity, increased investment—particularly in the extractive sector and continued implementation of the government initiatives such as the Parish Development Model (PDM).

On the other hand, the MPC thinks the current pace of growth suggests that activity is approaching capacity limits. Further acceleration of growth could lead to demand outstripping supply, adding to inflationary pressures.

These include, bad weather, disruptions to global supply chains due to trade tensions or changes in shipping routes. Other factors are weaker external demand due to slower global growth and policy uncertainty as well as tighter financial conditions, reversing the easing of global interest rates seen in late 2024.

However, upside factors include accelerated investment in the extractive sector, specifically oil and gas together with appropriate supportive government policies and an accommodative domestic financial conditions. Sustained growth in the tourism sector is also seen as a significant factor in cushioning Uganda against adverse external risks.

Atingi-Ego said, “The MPC considers the current policy stance appropriate to maintain inflation around target while supporting sustainable economic growth and socio-economic transformation.”