First Interest Rate Hike in Sub-Saharan Africa

Uganda became the first major sub-Saharan African economy to increase interest rates this year to counter inflation pressures caused by weakening currency and rising oil prices.

The Monetary Policy Committee (MPC) in the east African nation increased the benchmark rate to 10% from 9%, central bank Governor Emmanuel Tumusiime-Mutebile told reporters on Wednesday in the capital, Kampala. That is as inflation pressures have increased and price growth is projected to exceed its target, he said.

“A key risk to the inflation outlook is the shilling exchange rate, which remains vulnerable to the possibility of tighter global financial conditions as well as stronger domestic demand,” Tumusiime-Mutebile said. The weaker currency “combined with higher oil prices could result in a more elevated inflation trajectory,” he said.

The US Federal Reserve has raised rates three times this year. That added to pressure on emerging-market assets and currencies that have already taken a knock from the trade war between the US and China and the recent turmoil in Turkey. The Ugandan shilling has weakened 4.5% against the dollar since the start of 2018.

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