A report by Standard Chartered Bank projects a sharp increase in Uganda’s inflation as the 2016 general elections draw close.
The ‘Global Focus 2014; Rising East, Emerging West’ report notes that while a stable Shilling resulting from increased inflows has surpassed inflationary pressure, vulnerability to adverse weather and expectations of increased government spending in the run-up to 2016 elections may increase inflation.
The sharp rise in the 2011 inflation to 30.4 per cent in October that year was, according to a section of business people, as result of irresponsible government spending during the 2011 general elections.
Due to the upside risks to inflation, Standard Chartered predicts that Bank of Uganda (BoU) is likely to tighten the Central Bank Rate – the rate at which it lends to commercial banks – by 50 basis points in 2014, 150 basis points in 2015 and 100 basis points in 2016. This would mean that commercial banks will also increase the lending rates, which will further affect the performance of the economy by making loans too expensive to potential borrowers.