The Bank of Uganda lowered its benchmark policy rate by 0.25% to 0.75%, indicating a further reduction in inflationary pressures and the ripple effects of an easing of monetary policy actions by major central banks.
According to the most recent economic data, core inflation, a gauge of price changes that takes energy prices into account, decreased marginally from 3.9% to 3.7% over the same period, but annual headline inflation fell from 3.5% in August to 3% in September 2024.
The rate of inflation in services decreased from 6.2% in August to 5.8% in September.
September’s other goods inflation rate held steady at 2%, indicating that the local business environment’s price pressures are abating.
The primary reasons for the decline in inflation are lower fuel and food prices, even in the face of ongoing threats from unfavourable weather conditions linked to extreme climate change patterns.
Uncertainty persists regarding the precise effect of the central bank rate (CBR) cut on the momentum of economic growth. Economic growth is anticipated to range from 6% to 6.5% for the fiscal year 2024–2025.
“Whenever we cut the CBR, we consider inflation and economic growth in perspective over 12 months. So far, the CBR stood at 10 per cent while the average interbank rates stood at around 12% by the end of September. With the CBR down to 9.75%, average interbank rates will reduce to around 11.75%. This situation will encourage commercial banks to cut lending rates, expand their loan books, and eventually boost economic growth along the way,” Dr Adam Mugume, Bank of Uganda’s Executive Director for Research said.
In August, the central bank cut its interest rate to 10%.
“The CBR cut was widely expected because of the recent easing of monetary policy undertaken by the US Federal Reserve. The US Fed has already cut its benchmark policy rate while the European Central Bank has slashed its policy rate twice. The CBR cut implies commercial banks will cut their prime lending rates going forward and this will stimulate demand for private sector credit, increase aggregate demand, and boost economic growth,” Benoni Okwenje, General Manager for Treasury Operations at Centenary Bank Uganda Limited said.