The Bank of Uganda has taken a significant step by lowering the Central Bank Rate (CBR), signaling its intent to stimulate economic activity.
Deputy Governor Michael Atingi-Ego offered insights into this development. He attributed the reduced inflation to more affordable prices for goods, including food and imports, as well as a contraction in consumer spending.
Atingi-Ego however said the suspension of additional credit by the World Bank could potentially have far-reaching consequences, impacting the nation’s economic forecasts.
He articulated that Uganda might need to adopt measures involving considerable financial outlays, such as increased domestic borrowing or prudent fiscal restraint. These actions, while pivotal, may bear ramifications on the country’s foreign reserves and economic stability.
Highlighting the nation’s economic resilience, the central bank governor noted that Uganda managed to exhibit robust growth, even during periods of uneven global economic expansion. Notably, the economy expanded by approximately 5.3 percent during 2022/23.
However, present concerns encompass a deceleration in economic growth due to subdued domestic demand.
Statistics from the Uganda Bureau of Statistics show a contraction of around 6.5 percent in the economy during the second and third quarters of 2022/23.
This slowdown was particularly pronounced in agriculture, industry, and services sectors.
The central bank anticipates a gradual recovery in economic growth, ranging between 5.0 and 6.0 percent for the fiscal year 2023/24. Private sector consumption, investments in resource industries, and an uptick in exports are expected to serve as key growth catalysts, according to the bank’s projections.
This move marks the first time the CBR has been lowered since June 2021. Functioning as a control lever for borrowing costs, the CBR had experienced a notable upward trajectory from April 2022 to October 2022 before witnessing this recent downward adjustment.