Uganda’s central bank is set to hold its key interest rate for a fifth time in a row after the World Bank’s decision to halt new funding to the country for its passage of anti-LGBTQ legislation led the local currency to weaken and because of new inflationary pressures.
(Bloomberg) — Uganda’s central bank is set to hold its key interest rate for a fifth time in a row after the World Bank’s decision to halt new funding to the country for its passage of anti-LGBTQ legislation led the local currency to weaken and because of new inflationary pressures.
Of the four analysts surveyed by Bloomberg, two expect the Bank of Uganda’s monetary policy committee to maintain the rate at 10%, one predicts a cut and the other said it could go either way.
Annual core and headline inflation slowing to 16-month lows in July — and being below the central bank’s 5% target since June — leave room for the MPC to cut, said Greg Struyweg, economist at Oxford Economics Africa. But a number of upside risks have materialized that “might cause them to hold out for longer so as not to undo the progress already made,” he said in response to emailed questions.
Those risks include expected El Niño rains that could cause flooding between October and December affecting food prices, and the depreciation of the shilling after the World Bank’s Aug. 8 decision, said Benoni Okwenje, general manager of financial markets at Kampala-based Centenary Bank Ltd., who is forecasting the MPC to hold.
The shilling has dropped almost 3% since the World Bank said it would suspend new funding because the anti-LGBTQ act contradicts its values. The law includes the death penalty for so-called “aggravated homosexuality,” defined in part as engaging in sex if the offender is HIV-positive.
Read More: Uganda’s Shilling Plunges After Funding Cut Over Anti-LGBTQ Laws
The shilling may weaken further if others follow the World Bank’s lead. “The World Bank, being a major development funding partner might induce other development partners especially from the Organisation for Economic Co-operation and Development countries” and the International Monetary Fund to follow suit, Kampala-based Civil Society Budget Advocacy Group said in a statement.
Undisbursed loans at end-December stood at $4.81 billion of which the World Bank made up 29%, followed by the IMF at 16%, African Development Bank Group at 14% and other lenders the rest, the group said.
“Uncertainty is never good for business and economic growth projections,” the CSBAG said.
Minister of State for Finance Henry Musasizi told lawmakers last week that the government may need to revise its budget for the year through June if its negotiations with the World Bank to reverse its decision fails.
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