According to the International Monetary Fund (IMF), Uganda’s central bank’s tighter monetary stance is likely to have an impact on capital markets.
The Washington-based lender, however, supports the Bank of Uganda’s decision to try to control inflation by tightening liquidity conditions, according to a report by The Monitor.
Uganda is currently experiencing high commodity prices and rising inflation, prompting the central bank to raise rates twice as it attempts to control inflation.
Additionally, economic shocks are ravaging almost every country in the world due to Covid-19 related disruptions and the Russian-Ukrainian conflict, leading to global supply chain issues and rising commodity prices.
In its World Economic Outlook update, the IMF said that tighter financial conditions are triggering debt overhangs in emerging markets and developing economies.
“As central banks in advanced economies raise interest rates to fight inflation, financial conditions around the world will continue to tighten.
The resulting increase in borrowing costs, without tighter domestic monetary policies, will put pressure on international reserves and lead to depreciation against the dollar,” he added.
Such challenges will come at a time when the financial positions of governments in many countries are already stretched, implying less room for fiscal policy support, with 60% of low-income countries at or at high risk of debt distress. public, the report notes.—Zawya News