UGANDA, Kampala | Real Muloodi News | On Wednesday, Uganda’s Central Bank announced to cut its benchmark interest rate to 6.5%; the bank’s lowest ever benchmark rate. The surprise move follows Ghana and Democratic Republic of Congo, who have also reduced borrowing costs this year, Bloomberg reported.
According to Reuters, this move comes at a time where Uganda’s public debt is predicted to surpass 50% of GDP by the end of the fiscal year, which is at the end of this month. The reason for this historically low rate is to increase borrowing and elevate businesses that have been affected by the COVID-19 pandemic.
The Bank of Uganda, in a statement, explained the reason for cutting its policy rate by 50 basis points to 6.5%:
“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.”
This rate is the lowest in Uganda’s history since the introduction of an inflation-targeting monetary policy in 2011.
Covid-19 implications in Uganda:
The second wave of COVID-19 has hit Uganda hard, with infections in Uganda now at their highest since the pandemic began. As of today, June 18, the daily average reported is now at 1,466 new infections reported each day. There have been 67,215 infections and 542 coronavirus-related deaths reported in the country since the pandemic began.
As a measure to curb the infection rate, the government has reinstated a lock down. According to the Bank of Uganda:
“Domestic demand could be dented by (the) still emerging second COVID-19 wave, especially in the sectors that are contact-intensive.”
This is pertinent after today’s announcement by President Museveni that Uganda is tightening its lockdown measures even further to stem the surge in coronavirus infections.
Even though the Ugandan economy is expected to be growing between 4-4.5% in the next fiscal year, uncertainty due to the pandemic is inevitable. The Bank of Uganda said they are worried about contraction in the private sector investment. Hence, reducing the rate was required at this time as chances of the government offering a fiscal stimulus package are low, due to the rising public debt.
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