Rising inflation threatens East African economies

Mutebs

Uganda’s Central Bank boss, Emmanuel Tumusiime Mutebile

In a bid to stem off rising core inflation in Uganda, the country’s Central Bank has raised the benchmark lending rate from 11 to 12 percent.

The Governor Bank of Uganda, Emmanuel Tumusiime Mutebile said the Central Bank forecasts that the depreciating Shilling and real Gross Domestic Product growth will cause inflation pressures.

In March 2015, annual core inflation edged upwards to 3.7 % from 3.3 % in February 2015. This was partly driven by the effects of the depreciating Shilling on the prices of imported goods.

“Core inflation will rise to around five percent by mid-2015 and is likely to rise to the range of seven to nine percent by June 2016. In order to control a rise in core inflation over the medium term and above the policy target of five percent, the Central Bank tightened its monetary policy by raising the Central Bank Rate by one percent,” Mutebile said as he released the Monetary Policy Statement for April 2015 in the Ugandan capital Kampala

The Central Bank Rate is the benchmark rate at which it lends to commercial banks and between commercial banks. It determines the onward interest rates the commercial banks charge for loans.

Mutebile said indicators of economic activity, however, point to strong real GDP growth in the first half of 2014/15, supported by faster growth in private sector borrowing.

He predicted that real output growth may accelerate over the medium term, stimulated by higher public investment spending and private consumption, pushing real output even further above potential. This may exert upward pressures on prices of goods and services in the domestic economy.

Meanwhile a tightened monetary stance means the price of money will rise because commercial banks will most likely increase their lending rates.

Economists say that increasing the Central Bank Rate is exactly meant to increase the cost of borrowing in order to reduce aggregate demand.

Similarly, Tanzania’s March inflation slightly increased by 0.1 %t from 4.2 % to 4.3 % mainly due to an increase in food prices, National Bureau of Statistics announced Wednesday.

Ephraim Kwesigabo

Ephraim Kwesigabo, TZ’s Director of Population Census and Social Statistics

Ephraim Kwesigabo, Director of Population Census and Social Statistics said in a news conference Wednesday in Dar es Salaam that increase in prices  for nonalcoholic beverages and foods like rice (19.9%), cassava flour (8.3 %), meat (6.3 %), and fish (14.5 %), beans (5.3 %) and sugar (4.4 %).

He also stated overall index increased to 155.88 in March from 154.83 in February.

In Kenya inflation increased to 6.31% per cent from 5.61 in February.