Uganda – Fiscal deterioration likely to trigger BoU rate hike

Given recent pressure on the Ugandan shilling (UGX), the Bank of Uganda (BoU) is expected to raise its central bank rate (CBR) by 100bps to 13% when it meets on 16 June; there is a risk that it will do even more.

Details from Uganda's annual budget released on 11 June suggest that the authorities expect GDP growth to accelerate to 5.8% in FY16 (ends 30 June), from 5.3% in FY15.

However, the budget deficit is seen widening to 7% of GDP in FY16 (from 4.5% in FY15). Given a still-wide current account deficit (at c.8.5% of GDP in FY15), and the risk of further pressure on the UGX, the BoU is seen acting pre-emptively.

Despite a still-modest rate of inflation, risks will be seen to be magnified, with the BoU likely to follow its April CBR tightening with yet another 100bps rate hike, at least.