The Bank of Uganda (BoU) yesterday reduced the Central Bank Rate (CBR) to 8 per cent from 9 per cent with the aim of making credit (loans) cheap for the business community (borrowers).
In a similar note, BoU has also cut down Uganda’s growth rate to between 3 per cent and 4 per cent for this fiscal year 2019/2020 instead of an earlier projection of 6 per cent growth.
This is going to be the lowest economic growth Uganda will register in a period of more than five years while on the other hand it will also be the lowest policy rate since it introduced inflation targeting lite monetary policy framework in July 2011.
In a monetary policy statement issued yesterday, the BoU governor, Mr Emmanuel Tumusiime Mutebile, said: “Given the deterioration in macroeconomic conditions and in order to ensure adequate access to credit and the normal functioning of financial markets, BoU has decided to ease monetary policy. Consequently, the CBR has been reduced by 1 percentage point to 8 per cent.
Consequently, the Ugandan economy is projected to slow down drastically in the second half of Financial Year (FY) 2019/20, with GDP growth for the FY projected at 3 to 4 per cent.”
Mr Mutebile explained that downside risks to the economic growth outlook have increased, particularly in the near term and economic activity is projected to remain subdued until the pandemic is contained globally, pointing out that although GDP growth is projected to gradually recover in the second half of FY2020/2021, the emerging output gap is projected to persist until 2022.
On the Uganda currency state, Mr Mutebile said the Uganda shilling depreciated against the US dollar by 2.2 per cent between February and March 2020, pointing out that in addition, the propagation of Covid-19 bears severe consequences on Uganda through worsening of external position, due to capital outflows, adverse effects on the flow of international trade, tourism, workers’ remittances, foreign direct investment, and loan disbursement, exacerbating exchange rate depreciation pressures.
Speaking about inflation, Mr Mutebile said core inflation is projected to remain below its historical average in the 12 months ahead due to the widening of the output gap.