The Bank of Uganda has decided to maintain its benchmark lending rate at 9.5% in light of continued inflation risks, despite a recent decrease in prices. Although inflation slowed to 2.7% in September from 3.5% in August, the central bank warns that factors such as a weakening local currency and elevated global food and fuel prices could contribute to higher inflation. Michael Atingi-Ego, the deputy governor of the Bank of Uganda, stated that the aim of keeping the rate at 9.5% is to stimulate economic activity while keeping inflation around the target level.
In addition to these concerns, the central bank also highlights the potential impact of El Niño weather conditions, which could lead to above-normal rains and flooding, affecting agricultural production in the second half of the year and causing a spike in food inflation.
Economists at Oxford Economics Africa predict that Uganda will maintain the current high interest rate for a considerable period due to the elevated risks to inflation. Despite these challenges, Uganda is set to become a major crude oil producer by 2025 when TotalEnergies begins pumping up to 230,000 barrels per day of crude from fields along the western border with the Democratic Republic of Congo. With the introduction of oil production, the central bank expects annual growth rates to increase to over 7% from 2025 onwards, up from the current average of 4.5%.