Kampala, Uganda — In response to the escalating fuel crisis and the international economic tensions stemming from the Middle East conflict, the Bank of Uganda (BoU) has implemented a significant monetary policy adjustment. This move, which involves raising the Cash Reserve Ratio (CRR) from 9. 5 percent to 11 percent, represents one of the bank’s most aggressive liquidity tightening measures in recent years.
The sudden increase in global fuel prices, a direct outcome of disruptions in the global oil market and shipping routes due to the Middle East conflict, has put immense pressure on Uganda’s economy.
The cost of fuel has surged, with prices in Kampala reaching between Ush5,000 ($1. 3) and Ush6,000 ($1. 6) per litre, and in some towns outside the capital, prices have topped Ush10,000 ($2.
6) per litre. This rise in import costs has intensified the demand for US dollars, weakened the Ugandan shilling, and heightened fears of imported inflation. Despite the country’s foreign exchange reserves remaining under pressure, the BoU’s decision to raise the CRR is a strategic move to prevent a deeper currency crisis without depleting the foreign currency reserves through direct forex market interventions.
The latest adjustment is estimated to remove approximately Ush4. 84 trillion ($1. 27 billion) from interbank market liquidity based on existing deposits in the financial system.
This measure is aimed at curbing forex speculation and limiting imported inflation, according to officials and analysts.
The BoU’s Executive Director for Supervision, David Kalyango, stated that the primary intention behind the CRR increase is to stabilize the exchange rate and reduce inflationary risks stemming from external geopolitical shocks.
The bank’s proactive approach is echoed by comments from Charles Katongole of Standard Chartered Bank Uganda Limited, who warned of the potential for inflationary pressures to worsen across the economy if liquidity and speculation are not contained.
The situation in Uganda reflects the broader challenges faced by nations heavily reliant on imported commodities, and as the Middle East conflict continues to unsettle global oil markets, the impact is being felt across the continent.
The BoU’s actions are closely monitored both domestically and internationally, with the central bank’s ability to manage the situation effectively being crucial in shaping the country’s economic trajectory in the coming months.
*Additional reporting by ImNews | Sources consulted: 5*
—
This original article was produced by the ImNews editorial team
Source: Africa.businessinsider
Source: Segun Adeyemi
