In brief
- The Monetary Policy Committee (MPC) of the Bank of Uganda (BoU) retained the Central Bank Rate at 9.75% in its February 2025 meeting. This was the second successive HOLD decision with the balance of risks tilted to the downside against a fluid uncertain external sector environment.
- The highly fluid external backdrop was salient in the MPC statement. Although there have been retaliatory measures by the initial target countries of additional import tariffs imposed by the US, the tariffs are increasingly becoming a key policy lever under the Trump administration.
- The balance of risks is less optimistic at the February 2025 meeting compared to the MPC’s assessment during the December 2024 MPC meeting. The policymakers expect core inflation to average 4.5% this year, up from an average of 3.6% actualized in 2024.
- There has been a slow transmission of the previous policy easing to the real sector. The Bank of Uganda lowered the policy rate by a cumulative 50bps in the second half of last year, although change in commercial banks’ lending rates has been flat.
- Unlike the Central Bank of Kenya’s explicit tone on penalties for banks that delay lowering their lending rates, the BoU’s benign approach implies a much longer transmission lag. Nevertheless, with the 2025 MPC calendar showing the shift from bi-monthly meetings to quarterly MPC sessions, the longer time frame for policy monitoring from 2months to 3months between MPC meetings should allow for better policy finetuning.
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