. the results were dramatic. annual headline inflation had averaged 93 percent from 1981 to 1992. from 1993 to the present day it has averaged 6. 9 percent. bis central bankers ’ speeches as the economy has developed and the financial system has deepened, the bank has strengthened its monetary policy framework with the introduction of inflation targeting. this framework allows for a more sophisticated approach to the proactive control of inflation using a publicly announced policy interest rate, which we call the central bank rate. the second area where the bank of uganda ’ s contribution to the recovery of the economy has been of critical importance is that of bank regulation. by the end of the 1980s, the banking system had shrunk, as a result of financial repression and macroeconomic instability, and some of the major banks were suffering chronic financial distress. during the 1990s, distressed banks were restructured and restored to solvency or closed down. a new banking act was enacted in 1993 and the bank of uganda prioritized the prudential regulation of banks, with the safety of customers ’ deposits being the foremost objective. over the last 20 years we have gradually strengthened the prudential regulatory framework, especially with regard to intervention in distressed banks and the introduction of risk based bank supervision. the result has been a dramatic restoration of public confidence in the banking system. at the end of the 1980s bank deposits amounted to only 4 percent of gdp, whereas today they amount to 16 percent of gdp. the growth of bank deposits has, in turn, made possible a dramatic growth in bank lending to the private sector. in real terms, after adjusting for inflation, commercial bank lending to the private sector has expanded eighteen fold since 1992. the foundation for the sustained improvements in macroeconomic management as well as bank regulation and supervision was the changes that were made to the institutional structure of governance in the 1990s. of particular importance was the 1996 constitution, which set out the mandate of the bank of uganda and guaranteed its independence to implement its mandate in accordance with the law. this brought the governance of the bank of uganda into line with the evolving best practice for central banks around the world. i want to conclude by expressing my appreciation and thanks for all those members of staff, past and present, of all ranks, and all of the board members, who have served the bank of uganda and devoted their careers to public service during the first 50 years of the bank ’ s existence. without your efforts, the bank would not have achieved any of its successes. this 50th anniversary celebration

up inflation rather than expand output. this brings us directly to the second factor underlying our today ’ s decision. inflation becomes a growing concern. in may, annual price growth rates reached 6 %, considerably exceeding the target level. the current inflationary pressure has intensified. the average three - month ( from march to may ) seasonally adjusted price growth peaked up to a maximum since january 2016. similar trends are observed for other indicators of price dynamics under our consideration. it does not seem correct to attribute this elevated price growth exclusively to the impact of transitory supply - side factors, in particular, global price movements. let me remind you that this explanation was the main one when prices picked up in q4 last year. at that moment, doubts indeed persisted as to the sustainable nature of demand recovery given the ongoing pandemic. nonetheless, even then we aired fears that the rise in inflation expectations driven by these external shocks might transform one - off proinflationary factors into sustainable ones. we may see now that in recent months the proinflationary impact of demand has become prevailing. the fundamental difference of the so - called ‘ cost inflation ’ from ‘ demand inflation ’ is how it influences the physical volumes of consumption. in case of ‘ cost inflation ’, that is, supply shock, prices are growing, but consumers have to buy less in response. businesses can only partially translate their costs into prices, as demand is limited. whereas, if both prices and sales volumes grow, and this is exactly what we are seeing now across quite a few market segments, it means that the expansion in demand is by far exceeding the impact of supply - side factors. therefore, it means that we are facing ‘ demand inflation ’. finally, elevated inflation expectations do make a considerable contribution to inflation. in anticipation of price increases, consumers are ready to start buying earlier than they previously planned. thus, given the unanchored expectations even transitory price spikes may become more sustainable. why is the acceleration of inflation posing a threat? it is more difficult for companies to stick to their business plans, predict financial flows, and hedge against volatility. it is the most vulnerable citizens that are hardest hit by inflation. low - income families spend increasingly more funds on essential goods. high inflation boosts inequality, lowers social security, and undermines the financial standing of most families. that is why our main task is to stabilise price growth 2 / 4 bis central bankers'speeches as soon as possible by