Uganda’s central bank cut its benchmark interest rate for a second time this year to a new low as risks to inflation remain benign and the outlook for economic growth is tilted toward the downside.
The monetary policy committee reduced the rate to 7% from 8%, Governor Emmanuel Tumusiime-Mutebile said Monday in a speech broadcast online. That is the lowest level since the central bank introduced the policy rate in 2011 at 13%.
Returning to pre-pandemic levels of economic activity will be gradual, partly due to weak external demand, Tumusiime-Mutebile said. The central bank now sees the economy expanding 2.5% to 3.5% this year, compared with its April forecast of 3% to 4% growth. While the risks to the outlook are “extreme and tilted toward lower economic growth” expansion will pick up to 4% to 5% next year and 6% to 6.5% in 2022, he said.
“The forthcoming fiscal stimulus together with accommodative monetary policy might offset the negative impact the Covid-19 pandemic has on the economy in a manner that is stronger than currently envisaged,” he said.
Inflation slowed to 2.8% in May from 3.2% in the previous month. External sources of price growth, food crop inflation and risks from shilling depreciation are all expected to remain weak, according to the MPC. The rate of price growth will therefore remain below the medium-term target of 5% in the next 12 months, the panel said.
The central bank in April asked banks to restructure struggling debt for a maximum of 12 months to give borrowers hit by the coronavirus pandemic some breathing space. The East African nation has received US$491.5M in International Monetary Fund financing, half of which it has earmarked for manufacturers.