KAMPALA, UGANDA - Central bank governors in the five EAC partner countries have agreed to tighten their monetary policies further as a measure to bring down the high inflation in the region.
According to a statement circulated last week, Prof. Njuguna Ndung'u, Governor, Central Bank of Kenya, Prof. Benno Ndulu Governor, Bank of Tanzania, Prof. Emmanuel Tumusiime Mutebile Governor, Bank of Uganda and Amb. Claver Gatete Governor, National Bank of Rwanda met in Nairobi last week to deliberate on the current economic developments regarding inflation and the exchange rate in the region.
During their deliberations, the governors were in consultation with Mr. Gaspard Sindayigaya Governor, bank of Burundi.
Inflation levels in the five EAC countries have been increasing with that in Uganda jumping by close to 7% from 21.4% in August to 28.3% in September.
It led to the BOU governor Mr. Emmanuel Tumusiime to exercise a tighter monetary policy when he raised the bank lending rate from 16% to 20%, with further promise of increasing the lending rate further if the inflationary measures does not subside.
Inflation in Kenya rose to 17.32% from 16.67%. It was the same scenario in Rwanda where inflation reached 7.52% from 7.14%.
Figures also indicate that Tanzania's inflation rate also accelerated to 13% as of July this year.
Burundi's inflation level also indicated an increase to 8.4% as of April this year, the closest monthly rate we could obtain from the country.
The governors also agreed to stem volatility in the foreign exchange markets and to curb currency speculation in the sector.
Many people commonly referred to as "speculators" have been buying dollars off the market in large numbers in the region and selling them at a higher exchange rate during times of scarcity.
The multinational companies have also been blamed for the weakening local currencies in the EAC partner countries as they drain the dollars through profit repatriation.
The central bank governors concurred the region is facing very high inflation originating primarily from high food and fuel prices but also from demand pressures, as well as the weakening of the currencies and exchange rate volatility.
The pressures for the currencies to weaken result mainly from the widening of the current account deficit originating from rapid expansion of the oil import bill and imports for infrastructure development.
In addition, the exchange rate volatility has been due to the effects of the Euro sovereign debt crisis and currency speculation activities.
Since march this year prices of essential commodities have gone up some by 50% owing to rising fuel prices on the international market coupled with high demand amid low supply.
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