banking

Uganda central bank's tight monetary policy may impact markets: IMF

August 5, 2022

Fund supports move to control inflation by tightening liquidity

Uganda central bank's tighter monetary stance is likely to impact capital markets, the International Monetary Fund (IMF) has said.

The Washington-based lender, however, supports the move by the Bank of Uganda in trying to control inflation by tightening liquidity conditions, according to a report by The Monitor.

Uganda is currently experiencing high commodity prices and an increase in inflation, which has prompted the central bank to raise its rates twice as it moves to control inflation.

Moreover, economic shocks are ravaging almost every country in the world due to Covid-19-related disruptions and the Russia-Ukraine conflict, resulting in global supply chain issues and higher commodity prices.

In its updated World Economic Outlook, the IMF said tighter financial conditions trigger debt distress in emerging markets and developing economies.

'As advanced economy central banks raise interest rates to fight inflation, financial conditions worldwide will continue to tighten. The resulting increase in borrowing costs will, without correspondingly tighter domestic monetary policies, put pressure on international reserves and cause depreciation versus the dollar,' it added.

Such challenges will come at a time when government financial positions in many countries are already stretched, implying less room for fiscal policy support, with 60 percent of low-income countries in or at high risk of government debt distress, the report noted.

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