Bank of Uganda (BoU) is expected to retain the current policy rate of 9.50% in April 2024, in line with its February decision that was influenced by inflation rates remaining below the 5.0% target, although an uptick was noted in January to 2.8%. Global commodity prices and geopolitical unrest, particularly the Israel-Hamas conflict, affect the inflation outlook with risks currently perceived to be on the rise. Given Uganda’s exchange rate depreciation since August 2023 after international relations became constrained, the shilling stability remains a priority, thereby no immediate action in terms of policy rate adjustment is anticipated. The BoU is forecasted to cut the policy rate by 100 basis points (bps) to 8.50% by the end of H224 as external pressures ease and the Federal Reserve in the US is also expected to reduce rates, which could alleviate the carry-trade concerns for the Ugandan shilling. Moreover, the sustained underperformance against the inflation target throughout 2024, possibly averaging at 3.7%, may give grounds for a more lenient policy stance. Growth indicators in Uganda stay positive, with projected acceleration of real GDP growth from 4.7% in 2023 to 5.6% in 2024, driven by strong private consumption and investment, countering a desire for substantial rate cuts. This optimism, however, is balanced by risks associated with the ever-present threat of greater inflationary pressures than forecasted.
“Banking and Monetary Policy”, “Global Commodity Markets”, “International Relations”,”Uganda”, “United States”, “Middle East”
https://www.fitchsolutions.com/bmi/country-risk/bank-uganda-will-cut-policy-rate-h224-following-february-hold-07-02-2024