By Our Reporter
Bank of Uganda (BOU) predicts the country could see inflation rise up to 10% in the next 6 months. According to the Bank’s head of research Adam Mugume, external sources of inflation are likely to stay generally benign given the weak global demand conditions.
Speaking today at the release of the Monetary Policy statement at the bank’s offices in Kampala, Mugume said, “On the domestic front, the exchange rate depreciation experienced over the last 12 months is yet to feed through completely to prices and will therefore continue to put upward pressure on inflation. In addition, the projected El Nino weather conditions could result in higher food crop prices in the last quarter of 2015 and the 1st quarter of 2016 further heightening inflationary pressures.”
The Ugandan shilling has over the past 1 month been stable against the dollar trading at an average of Ushs 3,650. Mugume attributed this to the weakening of the dollar against the euro.
“We have witnessed less volatility in the exchange rate in the months of September and October 2015. More recently, the exchange rate has strengthened by close to Ushs 50. We expect the rate will remain relatively stable going forward although we cannot confirm this stability is sustainable due to global economic conditions,” he said.
BOU increased the Central Bank Rate (CBR) to 17% from the previous 16% citing rise in inflation to 7.2% in September. The bank’s governor Emmanuel Mutebile said the heightened inflationary pressures were driven by the rise in food crop prices combined with effects of exchange rate depreciation.
“Although real GDP growth in FY 2015/16 is projected at 5% down from an earlier projection of 5.8%, this is still strong growth given the weakening global economy. The downward revision was necessitated by four factors; the subdued global growth which will reduce demand for exports; reduced capital flows and low international commodity prices which will exacerbate the effects of declining exports; exchange rate depreciation which will increase the cost of imported capital; and the impact of tight monetary and fiscal policies, which may weaken domestic demand,” he explained.