Uganda’s Central Bank kept its benchmark policy rate unchanged at 6.5 percent for February 2022 following the full reopening of the country’s economy last month alongside renewed business optimism across several sectors.

Whereas the latest policy rate announcement seemingly met analysts’ expectations, it also bore considerable symbolism in light of recent developments.

This policy marks the initial Central Bank Rate (CBR) update for 2022 and the first monetary policy announcement issued by Bank of Uganda (BoU) since the death of former governor Emmanuel Tumusiime-Mutebile that occurred in January.

The packaging of this statement might offer clues on the direction of monetary policy actions after Mutebile’s 20-year leadership at the Bank.

While previous monetary policy statements focused a lot on changes in inflation, exchange rates, economic growth and interest rates, BoU’s latest policy rate announcement is heavily biased towards economic growth patterns.

Faced with a post-lockdown scenario, which has been dominated by full reopening of all sectors after a two-year lockdown and improved consumer spending patterns, the Central Bank was seemingly compelled to maintain a neutral monetary policy stance that favours stable interest rates, low inflation levels and sizeable economic growth patterns during its first policy meeting of 2022, analysts indicated.

This policy stance has somehow inspired bullish growth forecasts among BoU decision makers amidst scanty clues on projected movements in other economic performance indicators.

“On the domestic front, uncertainty about the evolution of the pandemic continues to cast a shadow on the economic recovery. New Covid-19 variants and a resurgence of lockdown measures would weigh on the outlook.

“Another important source of uncertainty for the outlook is the public investment and how this will be financed under the fiscal consolidation path, which is necessary to keep debt sustainable and avoid the risk of debt distress,” the latest monetary policy statement said.

Nonetheless, BoU projects economic growth to hit seven percent over the medium term, backed by increased social spending and recovery in the tourism sector.

Financial analysts are betting on a firm but stronger local currency and stable interest rates in the aftermath of the policy rate decision.

“Inflation is subdued right now and the exchange rate has appreciated of late. With inflation at 2.7 percent compared to an annual target of five percent combined with full reopening of the economy after two years of lockdown, keeping the CBR at 6.5 percent was predictable and we are not surprised at all by that policy move!” said Benoni Okwenje, General Manager for Financial Market Operations at Centenary Bank Uganda Limited.

“I expect the Uganda shilling to trade at Ush,3500/Ush3,550 to the US dollar in the short term on the back of increasing offshore portfolio flows, strong coffee exports and the International Monetary Fund’s recent disbursement of a $400 million loan instalment that was disbursed to Uganda towards the end of last year. However, local interest rates are likely to remain flat in coming weeks following the latest monetary policy rate announcement,” he added.