BoU cuts interest rates, economy to grow at 3%

Kampala, Uganda | THE INDEPENDENT | Bank of Uganda has said Uganda’s economy will only expand by 3-4% this financial year, half the earlier projection of 6% as the impact of coronavirus hits home.

In the April 2020 monetary policy statement, BoU Governor Emmanuel Tumusiime-Mutebile noted that this is because of capital outflows, adverse effects on the flow of international trade, tourism, workers’ remittances, foreign direct investment and loan disbursement – all expected to fall, a painful reminder of the hard times ahead.

To boost the economy, BoU has cut the Central Bank Rate (CBR) by one percent to 8% to boost the already failing economy due to coronavirus.

The CBR signals banks to cut or increase interest rates. The lower the CBR, the more it is assumed banks will cut their interest rates to ensure they lend cheaply.

BoU says it has granted exceptional permission to banks to restructure loans of corporate and individual customers including a moratorium on loan repayment for borrowers that have been affected by the pandemic, on a case by case basis for up to 12 months, effective April 1, 2020.

BoU says this is still at the discretion of the banks. Lending rates in the country remain so high – at 20 average – that many businesses will likely go bust because of inability to pay their debts.

In a statement, BoU said “risks to the economic growth outlook have increased,” with economic activity projected to remain low until the pandemic is contained globally.

Uganda has confirmed 52 cases of coronavirus and to stop the spread, the government has shut the businesses, suspended private and public transport and told people to stay home.

This means the economy has shut down with low tax collection and hardly much economic activity on-going.

The economy is expected to start recovering in the second half of 2020/21 financial year but not reach stable output until 2022.

The bank says it cannot tell significant uncertainty over the depth and duration of the current slowdown.

Also the Uganda shilling is expected to fall further against the US dollar, the central bank said.

BoU says the Uganda shilling has suffered as investors flee for safety with the local currency depreciating against the US dollar by 2.2 percent between February and March 2020.

Stephen Kaboyo, the managing director of Alpha Capital, a financial analysis firm, said BoU has been bent on minimizing the economic and financial impact of the COVID 19.

He said the real extent of COVID-19 impact is still unknown and only unfolding at the moment, the outcomes are predicted to be severe.

Analysts have said COVID-19 will see at least 17 million Ugandans fall into poverty.

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