The International Monetary Fund (IMF) has said central banks must access and support critical sectors of the economy if financial stability is to be maintained.
In its update on global financial stability yesterday, the IMF, said central banks must carefully assess which markets are critical for maintaining financial stability as well as design support programmes that could minimise moral hazard and risks to such markets.
However, the IMF did not point out which sectors must be focused on but urged central banks to continue with provision of liquidity in order to prevent impairment of funding conditions and functioning of major money, foreign exchange and securities markets.
In Uganda, government has already identified priority sectors, key among them, agriculture and agri-business, industrialisation and manufacturing.
The call, which is contained in the IMF Financial Policy Priorities in Response to the Crisis status update, also urges central banks to maintain an accommodative monetary policy stance that will support the recovery of global economy battered by the Covid-19.
“Central banks should maintain accommodative monetary policy in pursuit of inflation and financial stability through conventional and unconventional tools,” the IMF said.
Over the two months, global financial conditions have eased significantly following sharp tightening driven by a combination of marked fall in interest rates and a strong rebound in risk asset market valuations
Early this month, Bank of Uganda reduced the Central Bank Rate from 8 to 7 per cent as it sought to provide a basis for the recovery of the real economy.
Already, there has been a noticeable reduction in interest rates even as experts have predicted a fall in private sector credit.
The IMF also said that central banks, especially in emerging and developing economies, should use flexible exchange rates to absorb external pressures while countries with adequate reserves, can lean against market illiquidity to mute volatility in currency markets.
“In the face of an imminent crisis, capital outflow management measures could be part of a broad policy package, though such measures should be implemented in a transparent manner, be temporary, and be lifted once crisis conditions abate,” said the IMF.