Sylvia Juuko
25 September 2008
Kampala — The Central bank is to reduce the supply of money to a level consistent with price stability as a measure to rein in on inflation, the governor announced on Wednesday.
"The central bank remains committed to the low inflation objectives in the medium-term outlook and shall implement an appropriate monetary policy stance aimed at keeping money supply to a level that will keep inflation on track to deliver macroeconomic stability," Tumusiime Mutebile said.
Core inflation that the central bank tracks rose to 13.4% at the end of August from 12.9% in July.
The year-on-year inflation on the other hand rose to 15.6% in August, the highest since 1994, from 13.8% in July.
"While the economy will be allowed to adjust to exogenous shocks, the central bank policy actions will aim at minimising the second-hand effects feeding into domestic inflation."
Mutebile attributed high inflation to exogenous factors that included global inflation, rise in world oil and commodity prices.
He said seasonal factors including poor harvests, high domestic and regional demand for food, exacerbated the problem.
"The rise in the prices of processed foods were brought about by increased costs of raw materials, the impact of supply constraints as a result of the Kenyan post-electoral prices, together with increased transportation costs due to the surge in the world oil prices," the governor said.
He predicted that global inflation would decline in the near future if world economic growth rebounded and the financial markets turmoil normalised.
The governor said the rallying food prices were both an opportunity and a challenge.
"While short-run hikes in prices may pose unfortunate and difficult stresses to the general standard of living, it also provides opportunities for the Ugandan producers to increase domestic production to take advantage of the rising world commodity prices," he said.
"To reap the benefits from expanded access to markets for export products that our people produce requires a solution to the binding supply side constraints, ability to comply with trade standards and rapid improvement in productivity," he stressed.
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