Bank of Uganda has tightened the monetary policy this month by raising the Central Bank Rate – CBR by 2 percentage points to 16 percent to fight the increasing inflation rate.
Dr. Louis Kasekende, the deputy central bank governor says the bank will widen the band around the CBR to 4 percentage points and will also endeavor to ensure that seven day inter-bank rates remain within the band.
He explains that the discount rate will be set at 21 percent as the CBR plus a margin of 5 percentage points. He says the rate at which banks can borrow from Bank of Uganda against eligible collateral will be 22 percent from 21 percent.
Kasekende said the move by the Central Bank to raise the interest rate is not only to fight the growth in bank credit, which has expanded rapidly over the last one year but also to encourage higher levels of saving and to provide more support to the exchange rate.
He forecasts that annual inflation will begin to decline towards the end of this year and that the fall will continue during 2012, with core inflation falling to a range of 10 – 14 percent by September 2012.
Issuing the Monetary Policy Statement for September during a press conference at the Bank’s Boardroom on Tuesday, Kasekende said the policy target of Bank of Uganda is to reduce the inflation back to 5 percent.
Uganda's inflation jumped up to 21.4 percent last week, the highest since February 1993 and almost three points higher than a month earlier.
Francis Mashate, the acting executive director of Uganda Bureau of Statistics attributed the sharp increase mainly to a rise in food prices.
He said the increase in prices of these food items is mainly due to low supplies to the markets.
