Uganda’s central bank holds rate, growth below potential till 2023/24

“Economic growth is therefore projected to remain below its potential until FY2023/24,” BoU said, adding there is a need for monetary policy to remain accommodative until the economy normalizes as inflation is projected to be well contained in the medium term.

In October BoU forecast Uganda’s economy would contract between 0.2 and 0.5 percent in calendar year 2020 while growth in fiscal 20/21 was projected at 2.0 to 2.0-3.0 percent, rising to 5.0-6.0 percent in 2021/22 and 6-7 percent in later years.

In 2019 Uganda’s economy grew 5.6 percent, largely driven by an expansion of the services sector, construction and mining.

But the COVID-19 pandemic hit economic activity hard, along with the invasion of locusts and flooding, and earlier this month the World Bank forecast gross domestic product growth of 0.4 to 1.7 percent as exports, tourism, remittances and foreign direct investment shrunk.

“The medium-term outlook is also not favorable for Uganda,” the World Bank said, adding heightened uncertainty around the upcoming February 2021 elections further exacerbate risks.

Although BoU said the news about a vaccine “is reassuring and presents positive prospects,” it revised downwards its forecast for inflation from October due to the considerable spare capacity in the economy.

Inflation is now projected in a range of 5.0 to 6.5 percent in 2020 before converging to its medium-term target of 5 percent.

In October BoU said there was a near-term upside to inflation and saw core inflation remaining above 5 percent before gradually returning to 5 percent in 2022.

Uganda’s headline inflation rate dropped to 3.7 percent in November from 4.5 percent in October but core inflation only eased to 5.8 percent from 6.3 percent.

After falling sharply in March and then rebounding in the following months, Uganda’s shilling has risen since the start of November and rose further today.

The shilling was trading at 3,668.6 to the U.S. dollar today, up 6 percent since a low on March 25 but still down 0.4 percent since the start of this year.

Source