| By Winfred Kagwe and Florence Ntegeka
UGANDA should explore alternative monetary policies in order to keep the inflation rates consistent, a UK academic has advised.
�Uganda has achieved remarkable consistency in inflation but there are doubts if the current monetary framework adequately reconciles competing policy objectives, especially the exchange rate,� Professor Christopher Adam of the University of Oxford in the UK, explained.
He suggested that Uganda adopt inflation targeting, a policy in which the Bank of Uganda would keep inflation in a certain range by adjusting interest rates.
Because interest rates and the inflation rate tend to be inversely related, if inflation appears to be above the target, the bank could raise the interest rates, hence bringing down inflation.
Currently, the central bank uses a combination Treasury Bill and Bond auctions and foreign exchange sales to check inflation.
With inflation targeting, the Bank of Uganda can increase or decrease money supply by adjusting interest rates. The policy would also enable investors know the target inflation rate and interest rate changes in their investment choices.
Prof. Adams who is currently doing research at the Economic Policy and Research Centre said inflation targeting would lead to increased economic stability.
Uganda�s inflation has been below 10% per annum since the first quarter of 1996 and remained below this level until May 2008.
However, it is now at 12.5%.
Ghana and South Africa are already pursuing some form of inflation targeting.
He also said Bank of Uganda should adopt information technology as a means of anchoring inflation expectations and promoting communication with political players. |
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