The Bank of Uganda (BoU) has reduced the Central Bank Rate (CBR) by 1% point to 7% in June 2020 from 8 percent in April 2020 to spur economic growth as the country continues to feel the hardships brought about by the Covid 19 Pandemic.
Issuing the Monetary Policy Statement for June on Monday, BoU Governor, Prof. Emmanuel Tumusiime-Mutebile said that the decision was made based on the current economic situation in the country but also the long term macroeconomic outlook.
He however noted that in consistence with the slowdown of economic activity, inflation has remained subdued.
The headline and core inflation declined to 2.8% and 3.2% respectively in May 2020, from corresponding levels of 3.2% and 3.4% in April 2020.
“The public transport measures to contain the pandemic will temporarily increase transport costs in months ahead but the overall risks to the inflation outlook appear to be to the downside,” Mutebile said.
He noted that the economic slowdown and a gradual recovery will keep inflation below the medium target of 5% in the near term (12 months ahead).
“Although the measures taken by the BoU are yet to take full effect in mitigating the adverse effect of the pandemic on the economy, it is necessary to ease financial conditions further since inflation outlook remains benign,” Mutebile said while cutting the CBR to 7%.
He added that BoU will maintain adequate liquidity in domestic markets to encourage lending by financial institutions to households and businesses.
“Also, BoU expects financial institutions to reduce further their lending rates commensurate with our monetary policy stance,” Mutebile said.
CBR is a benchmark lending rate for commercial banks. This means that commercial banks are expected to reduce further on their lending rates that remain way too high.