The Bank of Uganda says as a way to control inflation as well as closely monitoring commercial banks business transaction on a daily basis, the central bank is introducing a new system dubbed, inflation targeting.

DR. louis kasekende

While announcing the new strategy today in Kampala, Kasekende states that they have been finding it difficult to monitor commercial banks easily forcing them to move from quantity to inflation targeting where the central bank will be producing a monthly number for monetary and sector development..

Meanwhile, the head of research at the bank, Dr. Adam Mugume adds that the strategy will see commercial banks operate under a given target set by the central bank. This not withstanding the final consumer is also affected by the strategy.

Inflation targeting strategy is slated to kick off on 4^th July 2011 making Uganda the third country in the region after Kenya and Rwanda to implement it.

By Isaac Senabulya

The post Bank of Uganda to tackle high inflation first appeared on Uganda Multimedia News & Information.

He says the current inflation that stands at about 14% is caused by temporary factors that are expected to subside in a few months.

Food stuffs in Nakasero Market Kampala Uganda

Dr. Mugume told a press briefing, during the release Bank of Uganda’s Monthly Economic and Monetary Developments Report for April 2011, that food crop prices are expected to decline following the harvest season that is expected.

“Prices for various commodities including oil have started to fall recently, indicating that the rise in consumer prices may be near its peak,“ he stated, explaining, ‘‘However, oil prices could continue to hit fresh peaks in months ahead as global economic recovery takes hold. “

During the month, according to the report, BoU pursued a relatively tight monetary policy stance with the objective of smoothing developments in economic activity, while at the same time curbing the second-round effects of inflation and anchoring longer-term inflation expectations at levels consistent with BOU‘s inflation target. This is because anchoring inflation expectations is crucial in maintaining price stability over the medium term.

Dr. Mugume told the press that large increases in food or energy prices tend to be temporary. He pointed out that history shows that they are often followed by sharp declines. For example, in 2006, oil prices rose significantly over the first eight months of the year but then dropped in the remainder of the year. While periods of rising food and energy prices cause inflation to rise temporarily, the subsequent periods of falling food and energy prices cause inflation to fall, also temporarily. To cause a lasting rise in inflation, these price increases have to be large enough and persist long enough that they spill over and cause sustained increases in a wide array of other consumer prices.

Dr. Mugume said that inflation is projected to fall in months ahead but could remain slightly above the target for most of 2011 in large part due to base effects.  (The base effect relates to inflation in the corresponding period of the previous year: if the inflation rate was two low in the corresponding period of the previous year, even a smaller rise in the Price Index will arithmetically give a high rate of inflation now)

“ At the moderate levels of inflation that we expect, the impact of inflation on growth is likely to be minimal,” he said. “ However, if inflation persists at high levels, above 10 % , for a longer period of time, then it will adversely impact on growth“ .

Ultimate Media

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