Uganda central bank cuts interest rate by one percentage point
CAPE TOWN - Uganda's central bank said it would reduce its key interest rate by one percentage point to 8 percent to try and mitigate the deteriorating economic conditions brought forward by the Covid-19 pandemic.
In a statement on Monday, Bank of Uganda (BoU) governor Professor Emmanuel Tumusiime-Mutebile said the pandemic had led to a severe contraction in economic activity due to global supply chain disruptions, travel restrictions, measures to limit contact between people and the sudden decline in demand.
“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," he said.
Uganda currently has 52 confirmed cases of Covid-19.
The central bank said consumer-facing industries had been severely affected by social distancing measures and heightened uncertainty, while the manufacturing industry had declined because of disruptions in the inflow of raw materials.
Activity in the trade sector was plummeting due to the decline in external demand and supply chain disruptions, while finance, insurance, and information and communications businesses were affected by delays in business activity and investment.
The BoU said Uganda's economic growth was projected to slow down drastically to between three and four percent in the second half of the 2019/20 financial year.
“The Covid-19 pandemic has been reflected in a deterioration of global financial conditions and an appreciation of the US dollar against other major currencies, resulting in the volatility in the domestic foreign exchange market,” it said.
The Ugandan government has put in place several measures to ease the financial stress, including ordering commercial banks to defer all discretionary payments such as dividends and bonus payments for at least 90 days from March.
The BoU has also undertaken to grant exceptional permission to supervised financial institutions (SFIs) to restructure loans of corporate and individual customers, including a moratorium on loan repayments for those affected by the pandemic.
This will be assessed on a case by case basis at the discretion of the SFIs for up to 12 months, effective from April 1.