The Independent Uganda: You get the Truth we Pay the Price
Mutebil’s optimism
On the upside, Mutebile says economic growth could recover swiftly than currently projected if the threat from COVID-19 fades more quickly than currently envisaged and global economic growth strengthens.
Such a scenario, according to Mutebile, could lead to greater business and consumer confidence, which factors would likely lead to a stronger domestic economic growth.
On the other hand, the annual core inflation will remain above 5% target in the near term but is projected to gradually converge to 5% in 2022.
“While there are no demand side pressures evident, cost push pressures emanating from higher taxes on imported consumer and intermediate products and social distancing measures could cause inflation to edge up further in coming months,” Mutebile said.
In addition, price pressures could increase, due to the further easing of lockdown measures as households increase spending on items that they had been forced to defer such as expenditure on school fees.
These pressures could also increase due to higher production costs from persistent supply disruptions.
Offsetting such forces are those that will weigh on demand, the central bank executives say. These forces include, a persistent increase in consumers’ precautionary saving prompted by higher perceived risk of joblessness and COVID-19 infection, less transfers from abroad and restrained credit extension by banks.
Despite a higher than target core inflation outcome since June 2020, the BoU executives say, the slowing down of the economy and gradual recovery will bring back inflation to around 5% target in 12-24 months ahead.
“Inflation is expected to be well contained over the medium- term on the premise that both global and domestic risks do not materialise,” Mutebile added as he kept the central bank rate unchanged at 7% and maintained liquidity support to supervised financial institutions.
****
