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Bank of Uganda Explains Drop in Inflation in March, 2023

'FULL MONETARY POLICY STATEMENT FOR APRIL, 2023'

By Our Reporter

 

NATIONAL/ECONOMY

 

Bank of Uganda has reported a drop in inflation in last month, March 2023.

 

In a monetary policy statement for the month of April, 2023, BOU says the recent drop in inflation is mainly attributed to a decrease in prices of essential goods such as Laundry Soap and Sugar as well as decline in charcoal and petrol inflation.

 

It also reported a steady decline in food prices but added they still remain higher than the historical trend.

 

The statement further says decline in overall inflation is on account of lower international oil prices, easing of global supply-chain challenges, and stability of the Uganda shilling relative to the US dollar due to appropriate monetary and fiscal policies.

 

POLICE STATEMENT FOR APRIL 2023

 

 

What should we expect of overall prices in the future?

 

Inflation peaked in the last 3 months of 2022 and is expected to continue declining, returning to the 5% target by the end of 2023. The factors that support this deterioration include i) slowdown of the world economy, ii) a reduction of geopolitical tensions and improved supply chains, and iii) a stronger shilling if global financial volatility wanes.

 

However, there are significant risks surrounding the inflation projections especially uncertainty about international financial conditions, the future path of the exchange rate, and oil prices remain high. Overall, the risks that could raise inflation if they materialize, are more probable.

 

What is likely to hinder the pace of economic recovery going forward?

 

The slack in growth partly reflects the tight monetary and fiscal policies, as the increase in the cost of borrowing and tight credit standards by banks affected the growth in lending to households and businesses. Economic growth is projected to remain below its long-term trend until FY2025/26 largely on account of

 

Bank of Uganda (BOU) has maintained the Central Bank Rate (CBR) at 10% in April 2023. What informed this decision?

 

The CBR decision is guided by BOU’s mandate to promote price stability. BOU assessed that even though inflation is declining, the risks to the outlook remain high with considerable uncertainty. BOU therefore maintained the CBR at 10% to contain inflationary pressures while at the same time supporting economic recovery. Looking ahead, BOU’s policy decisions will continue to be guided by the inflation outlook considering incoming information and data.

 

What led to the heightened volatility in the global financial markets and what is the impact to Uganda’s economy?

 

The recent banking system challenges in the US and Swiss banks resulted in volatility in the global financial markets which could tighten the already tight financial conditions. These challenges were partly on account of the loss of value of their financial assets caused by the rapid increase in interest rates by the monetary authorities to combat inflation.

 

 

The Ugandan banking system is well capitalized, highly liquid, and well-placed to absorb emerging interest rate shocks and to continue providing credit to the economy. However, there is need to continue monitoring as the events continue to unfold for any developments that could trigger a risk-off sentiment from emerging and frontier markets.

 

 

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