By Spy Uganda
Uganda’s central bank held its benchmark lending rate at 9.5% on Thursday, citing continued risks to inflation, despite a recent easing of prices across Africa’s top coffee exporter and upcoming oil producer.
While inflation slowed to 2.7% in September from 3.5% in August, potential drivers of higher inflation continue to linger amid a weakening local currency as well as elevated global food and fuel prices, Michael Atingi-Ego, deputy governor at the Bank of Uganda, told a news conference in Kampala.
“Foreign-exchange depreciation and an escalation in the ongoing geopolitical tensions could elevate inflation,” he said, adding that holding the rate at 9.5% is aimed at “stimulating economic activity, while maintaining inflation around the target.”
The impact of El Niño weather conditions, usually associated with above normal rains and flooding in the country, could also affect agricultural production in the second half of the year, spiking food inflation, according to the central bank.
Oxford Economics Africa said it expects Uganda to maintain the current high interest rate for some time, due to elevated risks to inflation.
Uganda, which mainly grows the bitter tasting robusta coffee variety used in home brews and espressos, is expected to join the league of crude oil producers in 2025, when TotalEnergies starts pumping as much as 230,000 barrels-a-day of crude, from fields along the western border with the Democratic Republic of Congo.
The central bank expects the new oil fields to elevate annual growth rates above 7% from 2025 onward from the current average of 4.5%.