The Ugandan Shilling gains as rate-setters convene a special meeting
Uganda’s shilling rose after the country’s central bank became the first in Africa to hold an unexpected rate meeting since Russia’s invasion of Ukraine disrupted global supply lines and caused inflation to skyrocket, fueling speculation that it could raise its main interest rate.
The Bank of Uganda announced a special monetary policy committee meeting on Tuesday, only days after a report showed core inflation surpassed the central bank’s 5 percent medium-term objective for the second month in a row.
Annual core inflation, which excludes the more volatile food and energy components, increased to 5.5 percent in June from 5.1 percent the previous month, while headline inflation increased to 6.8 percent from 6.3 percent in May.
The shilling rose 0.2 percent versus the dollar on Monday, reaching 3,742.70.
The MPC meets every two months on average. It raised the rate for the first time since October 2018 at its most recent meeting on June 2 to combat increasing inflation and support the weakening shilling. A bank representative was not immediately available for comment.
“I would predict a 50 to 100 basis point hike if there is a rate decision tomorrow,” said Benoni Okwenje, general manager of financial markets at Kampala-based Centenary Bank Ltd.
“This is in reaction to growing inflation.” At a recent occasion, the deputy governor said unequivocally that “BOU would continue to raise CBR as long as inflation exceeds their 5% objective.”
The central bank joins nations such as India in holding unscheduled meetings since the Ukraine war caused already high food and fuel prices to skyrocket, and rising interest rates in the United States and other developed countries prompted a sell-off of emerging market currencies by investors seeking higher yields.
In June, gasoline prices increased 46 percent year on year, while diesel prices increased 65 percent.