Central banks across Africa are tightening monetary policy to bolster their currencies.
UGANDA’S central bank raised its benchmark interest rate for a fourth consecutive meeting to halt the currency’s depreciation and curb inflation.
The Bank of Uganda increased the key lending rate by 150 basis points to 16%, Governor Emmanuel Tumusiime-Mutebile told reporters on Monday in the capital, Kampala. One of the three economists surveyed by Bloomberg forecast the rate will stay unchanged, while the rest predicted increases of 50 basis points to 100 basis points.
Central banks across Africa are tightening monetary policy to bolster their currencies as falling commodity prices and the prospect of higher U.S. interest rates prompt investors to sell off emerging-market assets. Uganda’s shilling has dropped 21% against the dollar this year.
Uganda’s central bank “believes that a tighter monetary policy stance is warranted to forestall risks of higher inflation to ensure that annual core inflation remains in single digits and converges towards the BOU’s policy target of 5% in the medium term,” Tumusiime-Mutebile said.
“There are several risks around the inflation outlook,” he said. “These include the future path of the exchange rate, which will in part be influenced by external developments, and the speed with which the recent depreciation feeds through to higher inflation.”
Higher borrowing costs may help to curb the pass-through effects of a weaker currency on prices. Inflation quickened to a 14-month high of 5.4% in July.
In neighbouring Kenya, the central bank last week paused its policy tightening to allow 300 basis points of earlier increases to work its way through the economy. to halt the currency’s depreciation and curb inflation.
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