Bank of Uganda has reduced the Central Bank Rate (CBR) from 7 percent to a percentage point of 6.5.
In a Monetary Policy Statement for June 2021 which was issued on the 16th June, Central Bank says it has reduced the CBR to boost the economy which has stagnated due to the disruptions presented by the COVID-19 pandemic.
“Indeed, the Uganda Bureau of Statistics (UBOS) in its June 2021 real GDP estimates indicate economic growth of 3.3 percent in Financial Year (FY) 2020/21, slightly higher than initial projections of 3.1 percent, owing primarily to stronger household consumption. However, contraction in private sector investment is persisting, partly reflecting heightened Covid-19 induced uncertainties. The real GDP growth outlook remains unchanged at 4.0-4.5 percent in FY2021/22,” said Emmanuel Tumusiime Mutebile, the Governor, Bank of Uganda.
Mutebile, however, noted that the recovery is expected to strengthen, with above-trend economic growth in the outer years as vaccine effectiveness increases, which should allow relaxing the current public health measures and a stronger rebound in domestic demand.
“A high degree of uncertainty surrounds the economic outlook, with many possible upside and downside risks. On the upside, moderate growth in domestic demand is expected over the forecast horizon and the strengthening global recovery is generally supportive of economic growth. Moreover, the vaccination process is expected to gather steam in the coming months, which should help to normalize economic activity quickly,” he said.
“The main risk is a resurgence of the Covid-19 pandemic and conceivably more contagious variants. In the near term (12 months ahead), domestic demand could be dented by the still-emerging second Covid-19 wave, especially in the sectors that contact intensive. In addition, there is little space for a fiscal stimulus package to respond to the fragile economic growth and the rising public debt necessitates fiscal consolidation to keep public debt on a firm downward path.”
Over and above that, a sizable share of domestic debt held by non-resident investors makes the domestic financial market an important transmitter of external financial shocks to economic growth in the event of intensified global financial volatility. Additionally, private sector credit growth slackened.
He also noted that currently the growth of private sector credit could be excessively deterred by higher non-performing loans (NPLs) and such developments are materialize, they would substantially slow economic recovery.
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