Uganda's central bank raises key rate to two-year high

By Elias Biryabarema

KAMPALA, July 5 (Reuters) - Uganda's central bank raised its key lending rate to a two-year high of 8.5% from 7.5% to help tame inflation that rose to its highest in five years last month, and warned it could tighten further.

The Bank of Uganda announced the decision after a special sitting of its monetary policy committee (MPC), taking the key rate to its highest since early 2020.

"Inflation continues to rise, largely influenced by external cost pressures stemming from higher global food and energy prices, persisting global production and distribution challenges as well as rising domestic food prices due to dry weather," Deputy Governor Michael Atingi-Ego told a news conference.

He said the MPC thought the monetary policy stance would have to be tightened further to ensure that inflation falls back to the target.

The central bank targets core inflation of 5% over the medium term.

The government of President Yoweri Museveni has blamed the price rises on the war in Ukraine and the coronavirus pandemic, shrugging off demands from opposition leaders for relief measures.

Headline inflation hit 6.8% in annual terms in June and core inflation reached 5.5%, up from 6.3% and 5.1% respectively in May.

Prices in the East African country have climbed for items including fuel, cooking oil, wheat and soap, triggering public protests.

Inflation is forecast to peak in the second quarter of 2023, before gradually declining to stabilise around 5% by 2024, Atingi-Ego said.

Economic growth in Africa's biggest coffee exporter is still projected in the range of 4.5% to 5% in 2022, rising slightly to 5% to 5.5% in 2023 supported by public investment, he added.
Reporting by Elias Biryabarema Writing by Hereward Holland and Alexander Winning Editing by James Macharia Chege and Bernadette Baum

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