The role of Uganda’s monetary policy in controlling inflation

Abstract

The topic of this study is the role of Uganda’s monetary policy in controlling inflation with the case study of Bank of Uganda. The main objective of this study was to examine the role of Uganda’s monetary policy in controlling inflation and it tested the hypotheses that Bank rate, rediscount rate and the 91-day Treasury bill rate do not play a significant role in controlling inflation. Monthly secondary data from January 2011 to December 2014 that was collected from Bank of Uganda and Uganda Bureau of Statistics was used to analyze the role that Uganda’s monetary policy plays in controlling inflation. This study focused on bank rate, 91-day Treasury bill rate and rediscount rate as the tools of Uganda’s monetary policy. The study was carried out by adopting an empirical linear model with inflation as the dependent variable. Diagnostic tests such as test for normality, test for stationarity, test for multicollinearity and test for serial correlation were carried on the study variables. The findings of the study showed that the rediscount rate had a positive relationship with inflation while the bank rate and 91-day Treasury bill rate had a negative relationship with inflation. The study concluded that rediscount rate does not affect the level of interest rates therefore Bank of Uganda should increase the bank and the 91-day Treasury bill rates to control inflation in Uganda when the problem arises.