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Central Bank maintains key rate at 9.75%

Peter 7th Feb, 2025 Economy Pedson Mumbere
Central Bank maintains key rate at 9.75%

Deputy Governor Atingi-Ego says external uncertainties necessitate a cautious approach to monetary policy. FILE PHOTO


The Central Bank Rate (CBR) for February will remain at the same rate of 9.75%, which has been in place since the end of last year, according to the Bank of Uganda.

The decision, announced on February 6, came as part of the BoU's Monetary Policy Statement, in which Deputy Governor Michael Atingi-Ego indicated that the near-term inflation outlook was largely contained, though external uncertainties continued to pose risks to economic performance.

In the face of global challenges, including geopolitical tensions and fluctuating global currencies, the BoU has exercised caution by keeping the benchmark interest rate unchanged. This decision underscores the importance of balancing inflation control with the need to stimulate sustainable economic growth in Uganda.

  • Uganda's inflation figures show a mixed picture. The core inflation rate, which the BoU aims to keep at around 5%, rose slightly to 4.2% in January 2025, up from 3.9% in December 2024. This increase was largely driven by rising costs in transport services.

While the year-on-year inflation remained relatively stable, the BoU recognizes that inflationary pressures may emerge from external sources, such as extreme weather patterns, shifts in global oil prices, and the strength of the U.S. dollar. These external factors could lead to a quicker-than-expected rise in inflation, making it all the more critical for the central bank to adopt a cautious monetary policy stance.

Atingi-Ego explained that the Central Bank anticipates core inflation to stay within a 4%-5% range over the course of 2025, but global uncertainties present a clear risk to this forecast.

  • The Central Bank’s ability to respond to such inflationary shocks while maintaining growth targets, is closely tied to its monetary policy framework, and leaving the CBR unchanged ensures the economy has the right mix of support to avoid destabilizing price pressures.

“Uncertainties from global developments could cause inflation to rise faster and disrupt economic activity. This situation necessitates a cautious approach to monetary policy,” Atingi-Ego said.

Despite these risks, Uganda's economic outlook remains optimistic. The BoU has maintained its growth projection for FY 2024/25 at 6.0-6.5%, with long-term growth expectations at around 7.0%.

This growth is supported by a stable macroeconomic environment, foreign direct investment (FDI) flowing into the extractive industries, and strong export performance, particularly in coffee and cocoa.

However, the Bank also recognizes that government spending pressures and external economic headwinds could dampen these growth expectations, highlighting the need for a cautious monetary policy approach.

  • In terms of the exchange rate, the currency has shown signs of strengthening, appreciating by 3.05% year-on-year in January 2025 compared to January 2024. This improvement has been attributed to a combination of favorable monetary policy actions, financial market reforms, and strong inflows from remittances, export receipts, and foreign direct investment. A stable exchange rate is crucial for controlling inflation, particularly in the context of imported goods and services.
  • The decision to maintain the CBR at 9.75% reflects the BoU’s commitment to keeping inflation under control while supporting economic growth.

“The current CBR level is adequate to control inflation while fostering Uganda's economic growth and socio-economic transformation. Future adjustments to the CBR will depend on new data and evaluation of risks,” he added.

Going forward, future changes to the CBR will depend on new economic data and evolving global risks.

As the world continues to face uncertainty, the BoU's cautious and data-driven approach will play a vital role in navigating the challenges ahead, ensuring that Uganda remains on a path of sustainable economic transformation.

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