NAIROBI: A drop in the value of the Ugandan shilling is likely to limit economic expansion this year by driving up prices and forcing the central bank to raise interest rates further, the country’s finance minister said.
The shilling is down 23 percent against the dollar this year, amid expectations the Federal Reserve will raise US rates.
“We have a challenge of a sliding shilling against the dollar so a bit of inflation now is creeping up,” Matia Kasaija said by phone from Kampala. The growth forecast “is likely to be affected if things don’t improve within a short period of time.”
Core inflation rose to 5.4 percent in July from 4.9 percent in June. In an interview the same month, a senior central bank official said the bank expected it to rise to eight to 10 percent over the next 12 months.
Policymakers have already begun tightening. Since April, they have raised the central bank’s benchmark lending rate by a total of 500 basis points, to 16 percent.
Authorities in the east African nation forecast the economy will expand by 5.8 percent this year from 4.8 percent last year, as it invests in infrastructure projects like a modern railway.
Kasaija, a former state minister for planning who was elevated to finance minister in March, said higher interest rates were cutting demand for private-sector borrowing.
The biggest risk to the foreign exchange rate was an imbalance in exports and imports, the minister said, without providing figures. He added the volatility in the exchange rate was “very undesirable”.
“It is affecting the economy adversely. It is pushing our inflation to figures which we never thought,” Kasaija said.
Kasaija said he was confident inflation would still be in single digits by the end of this year, as bumper food harvests keep food prices stable.
He sought to allay fears government spending would rise before presidential elections due in February or March.
“Money for elections was budgeted for,” he said.
The minister warned Ugandans, however, to brace themselves for spending cuts in other areas, such as allowances and travel for civil servants, to ride out the threat from a weakening currency. Salary increments will be frozen.
“Ugandans will have to do a bit of sacrificing when we are experiencing this shock ... If things get worse I will not hesitate to cut the expenditure of government,” he said.
REUTERS
NAIROBI: A drop in the value of the Ugandan shilling is likely to limit economic expansion this year by driving up prices and forcing the central bank to raise interest rates further, the country’s finance minister said.
The shilling is down 23 percent against the dollar this year, amid expectations the Federal Reserve will raise US rates.
“We have a challenge of a sliding shilling against the dollar so a bit of inflation now is creeping up,” Matia Kasaija said by phone from Kampala. The growth forecast “is likely to be affected if things don’t improve within a short period of time.”
Core inflation rose to 5.4 percent in July from 4.9 percent in June. In an interview the same month, a senior central bank official said the bank expected it to rise to eight to 10 percent over the next 12 months.
Policymakers have already begun tightening. Since April, they have raised the central bank’s benchmark lending rate by a total of 500 basis points, to 16 percent.
Authorities in the east African nation forecast the economy will expand by 5.8 percent this year from 4.8 percent last year, as it invests in infrastructure projects like a modern railway.
Kasaija, a former state minister for planning who was elevated to finance minister in March, said higher interest rates were cutting demand for private-sector borrowing.
The biggest risk to the foreign exchange rate was an imbalance in exports and imports, the minister said, without providing figures. He added the volatility in the exchange rate was “very undesirable”.
“It is affecting the economy adversely. It is pushing our inflation to figures which we never thought,” Kasaija said.
Kasaija said he was confident inflation would still be in single digits by the end of this year, as bumper food harvests keep food prices stable.
He sought to allay fears government spending would rise before presidential elections due in February or March.
“Money for elections was budgeted for,” he said.
The minister warned Ugandans, however, to brace themselves for spending cuts in other areas, such as allowances and travel for civil servants, to ride out the threat from a weakening currency. Salary increments will be frozen.
“Ugandans will have to do a bit of sacrificing when we are experiencing this shock ... If things get worse I will not hesitate to cut the expenditure of government,” he said.
REUTERS
