As Bank of Uganda maintains the Central Bank Rate-CBR at 11% for the month of August, inflation seems to be on the increase. According to the monitory policy statement issued on Monday morning, core inflation in the month of July rose from 5.8% to 6.4%. Bank of Uganda attributes the increase to the dry spell, which has pushed up the price of agricultural produce.
Emmanuel Tumusiime Mutebile, the governor Bank of Uganda says food prices have continued to go up due to the prolonged dry spell and predicted a further increase in food prices both in the local and foreign markets.
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He says headline inflation, which is caused by a rise food prices, rose from 3.6% to 5.1% which was unpredictable. Dr Adam Mugume, the executive director for Research at the Bank of Uganda, says the slight increase in inflation will affect the aggregate demand on the market. The purchase of processed agricultural goods both locally and internationally is expected to slag.
He also says other external forces like the rise in oil prices globally due to the Middle East and North African volatile political situations will continue to drive the rate of inflation. When asked on whether the economy will continue to grow, Mutebile said the Bank is forecasting a steady growth of 6% in the 2013/14 financial year though he did not rule out risks that might slow this growth. In other areas, BOU notes that commercial bank lending rates have sharply reduced in the past month making it possible to access capital for traders.
According to the statistics, lending rates have averagely reduced this year from 27% at the start of the year to 22.6% currently. Now using the forecast of inflationary pressures, Muteblie says the bank will keep a band of 2% on the Central Bank Rate to curb any volatile increases that may arise in case the dry spell does not end soon. Bank of Uganda says they will maintain the inflation at 5% as their target and any interventions that are warranted will be effected as the tide change.
Uganda's economy has just recovered from a 23% inflation rate in the last financial year that was also caused by rising food and fuel prices.
Raymond Mujuni
Freelancer