Responding to the alarming depreciation of the local currency, Uganda’s central bank took decisive action on Wednesday by increasing its key interest rate.
The move by the Bank of Uganda (BoU) to raise the central bank rate (CBR) to 10 percent follows several meetings where the rate remained unchanged despite mounting economic pressures.
Currency Depreciation Concerns:
The Ugandan shilling has experienced a significant decline of approximately 3 percent against the US dollar since the beginning of the year.
On February 26, it hit an unprecedented low of 3,955/3,965 to the dollar, prompting concerns about the stability of the local currency and its implications for the economy.
Rate Hike Decision:
In light of these challenges, the Bank of Uganda convened a special meeting to address the currency’s free fall.
Following deliberations, the decision was made to raise the key interest rate by 50 basis points, marking a shift from previous meetings where the rate had remained steady.
Efforts to Stabilize the Shilling:
The central bank’s decision to increase the CBR aims to mitigate further depreciation of the Ugandan shilling and restore confidence in the currency markets.
While recent sessions have seen a slight recovery in the shilling’s value, concerns persist regarding its long-term stability and the broader impact on the economy.
The decision to raise the key interest rate underscores the Bank of Uganda’s commitment to safeguarding the stability of the local currency amidst ongoing economic challenges.
By taking proactive measures to address currency depreciation, the central bank aims to maintain confidence in Uganda’s financial markets and support sustainable economic growth.