Uganda’s depreciating currency threatens to bring some complications to the country’s economy. The Ugandan Shilling which experienced an abrupt decline against the US dollar in the previous month has brought about more inflationary pressures. As a result, the Bank of Uganda has projected that inflation could go past the 5% target come the second half of the year.
- The Ugandan Shilling's abrupt decline against the USD raises inflation concerns.
- The Bank of Uganda increases the Central Bank Rate to 10% in response to currency depreciation.
- Deputy governor warns of potential inflation surpassing 5% without tightened monetary policies.
A report by the Ugandan newspaper, The Monitor, showed that the Bank of Uganda increased its Central Bank Rate from 9.5% to 10% recently, following the sharp decline of the country’s currency in February. The Ugandan Shilling has been on a downward slope since November 2023.
Micheal Atingi-Ego, the deputy governor of the Bank of Uganda, during the release of the Monetary Policy Statement, made the risk to the country’s inflation known should the currency continue to suffer.
The Bank of Uganda noted that the inflation could go from 3.4% which already represents a recent spike to 5% if monetary policies are not put in place.
“Inflation is projected to rise above the medium-term target of 5 percent by quarter one of 2024/2025 financial year and stay above 5 percent throughout 2025 unless monetary policy is tightened,” the bank’s deputy governor noted.
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The Ugandan Shilling's most recent opening came in at Shs3,909.96 against the US dollar, shortly before closing at Shs3,910, owing to an outflow increase of some offshore investment and domestic market demand.
Despite the bleak outlook for the inflation rate, the country is still set to experience an economic growth of 6%, as highlighted by the bank’s deputy governor. However, should the complications persist, 2025 and later years could see economic growth swing between 5.5% to 6.5%, depending on the ever-evolving economic factors facing the East African country.
While tax is projected to underperform, Uganda’s entry into the oil market and the removal of the country from the grey list by the Financial Action Task Force is expected to increase the inflow of foreign direct investments.
