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The Ugandan shilling strengthened after the central bank increased its benchmark interest rate to the highest in more than two years at a special monetary policy meeting due to a worsening inflation outlook.
The monetary policy committee raised the rate to 8.5%, from 7.5%, deputy governor Michael Atingi-Ego said in a virtual briefing on Tuesday in the capital, Kampala. That adds to a 100 basis-point increase a month ago and brings the benchmark to the highest level since early April 2020.
The shilling gained 0.8% to 3,713.89 per dollar on Tuesday, the most since June 17.
Uganda’s MPC was the first in Africa to call a special meeting since the start of the war in Ukraine. Central banks in Russia, Kazakhstan and India have held special meetings this year to curb portfolio outflows, currency sell-offs, inflation, or all three and attract investors lured by rising interest rates in the US and Europe.
Uganda’s MPC, which usually convenes every two months, held the special meeting to stabilise inflation around the medium-term target of 5% by mid-2024, Atingi-Ego said.
Annual core inflation, which excludes food and energy, exceeded the 5% target for a second straight month in June, accelerating to 5.5%, from 5.1% in May. Headline price growth quickened to 6.8% from 6.3%.
Headline and core inflation are now forecast to average 7.4% and 6.3% in 2022, slightly higher than the 7.2% and 6.1% projected at the last MPC meeting, and price growth is expected to peak in the second quarter of 2023, Atingi-Ego said.
Price pressures in the East African nation have been mounting as surging import bills and a move away from riskier assets have hit the domestic currency and the war chokes supply chains.
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