KAMPALA: Uganda's central bank on Wednesday cut its benchmark rate to a historic low to try to boost the flow of cheap credit and lift businesses battered by the effects of the COVID-19 pandemic.
The central Bank of Uganda (BoU) cut its policy rate by 50 basis points to 6.5%, the lowest since the east African country introduced an inflation-targeting monetary policy in 2011.
"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," the Bank of Uganda (BoU) said in a statement.
"Therefore the economic recovery continues to require monetary policy support."
Uganda's economy is seen expanding between 4-4.5% in the financial year starting next month, the central bank said, but it was worried about contraction in private sector investment caused by COVID-19 uncertainty.
Uganda is in the grip of a second wave of COVID-19, with a surge in both infections and fatalities. This month the government re-imposed a sweeping lockdown to try stem the spike in infections.
On June 13, the most recent 24-hour period for which data is available, the country recorded 25 deaths, the highest single-day number of fatalities so far.
So far Uganda has a total of about 64,000 cases and 459 deaths.
"Domestic demand could be dented by (the) still emerging second COVID-19 wave, especially in the sectors that are contact-intensive," BoU said.
The bank said cutting the rate was especially needed because there was little space for a government fiscal stimulus package because of rocketing public debt.
Uganda's public debt, which is forecast to surpass 50% of GDP by the end of fiscal year ending this month, has been fuelling concern by the central bank and government.
As at December 2020 Uganda's total public debt stood at $18 billion, two thirds of which is held by external creditors, according to the finance ministry.
Private sector credit growth slowed in March-April, BoU said, and rising non-performing loans in the banking industry could further impede efforts to expand credit access.