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Home Business Banking & Finance

Uganda’s central bank cuts rate to boost fragile growth as virus rises

4 years ago
in Banking & Finance, Business, Economy, Editor's pick, highlights, Home, home-news, latest News
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Uganda’s central bank cut its benchmark interest rate for the fourth time in the current monetary easing cycle, saying the economic recovery still requires monetary policy support and inflation will likely remain below the target in the near term with little space for fiscal policy to respond to “fragile economic growth.”

The Bank of Uganda (BOU) cut its central bank rate (CBR) by 50 basis points to 6.50 percent and has now cut the rate by a total of 3.50 percentage points since October 2019 when it began easing its policy stance in response to decelerating inflation and slowing global economic growth.

In response to the COVID-19 pandemic, the central bank cut its rate twice in 2020 – in April and June – and while the rate has been maintained for the last 12 months, BOU in February this year extended its credit relief measures and liquidity assistance to financial institutions as the economic recovery had lost momentum due to a surge in infection rates.

In its previous statement from April, the bank’s monetary policy committee said there were still enough uncertainties and risks to the economy to warrant keeping the accommodative policy stance and since then Uganda has experienced a rise in COVID-19 cases and a shortage of vaccines and oxygen.

The World Health Organization (WHO) last week warned of a third wave of the pandemic across Africa, with eight countries, including Uganda, seeing more than a 30 percent jump in cases in a week.

“The MPC (monetary policy committee) assessed that the risks to the economic growth outlook are still on the downside, there remains considerable excess capacity in the economy, sectoral unevenness of economic recovery, and a weak level of business investment,” BOU said.

Although economic developments have been broadly in line with the central bank’s outlook in April – growth in the 2020/21 financial year is projected to be 3.3 percent, above initial projections of 3.1 percent and up from a 1.1 percent contraction last year – private sector investment is still contracting and domestic demand could still be dented by the emerging COVID-19 wave.

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But BOU still expects the economic recovery to strengthen as vaccines are rolled out amid improving global growth and left its forecast for gross domestic product growth in the 2021/22 fiscal year, which begins July 1, unchanged at 4.0-4.5 percent.

As several other African countries, including Zambia, Uganda is facing pressure from an estimated 35 percent rise in public debt last year to about 50 percent of GDP due to from tax revenue shortfalls and the cost of measures to combat the virus.

Earlier this month staff from the International Monetary Fund (IMF) reached agreement with the country’s authorities on a $1 billion package to help tackle the financing needs in coming years.

Inflation in Uganda has been decelerating this year and after reweighing the consumer price index basket inflation fell to 1.9 percent in May from 2.1 percent.

BOU expects inflation to remain below its 5.0 percent target in the near term as excess capacity continues to put downward pressure on prices, but is forecast to stabilize around the target by the end of 2022.

On April 1 Uganda’s parliament reappointed the bank’s governor, Emmanuel Tumusiime-Mutebile, for another five-year term. Having initially been appointed in 2001, Mutebile, 71, is one of the longest-serving central bank governors in the world.

Source: African markets
Via: norvanreports
Tags: Bank of Uganda (BOU)central bank rate (CBR)COVID-19 pandemicInternational Monetary Fund (IMF)
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