Uganda slashes main interest rate to 8 per cent as coronavirus hurts economy

Uganda’s central bank cut its policy rate by 100 basis points on Monday to 8 per cent to support the economy which has been hit by the impact of the coronavirus outbreak.

The bank also said it now expected economic growth to “slow down drastically”, to between 3 and 4 per cent for the financial year to June, from a previous projection of 5.5-6 per cent.

Sectors such as manufacturing, entertainment and trade had taken a huge blow from the disruptions caused by the coronavirus and forced them to revise down growth projections, the bank said.

“The COVID-19 pandemic has led to a severe contraction in economic activity due to a combination of global supply chain disruptions, travel restrictions ... and the sudden decline in demand,” it said in a statement.

The bank’s benchmark interest rate is now at its lowest level since authorities introduced an inflation-targeting monetary policy in 2011. The rate had been steady at 9 per cent since October when it was cut from 10 per cent.

Uganda has recorded 52 cases of COVID-19, but no deaths so far. The government has imposed drastic measures to help curb the disease’s spread including a ban on public transport and public gatherings, and shutting down all businesses except the most essential.

Schools too were closed while authorities also imposed a dusk-to-dawn curfew.

As part of measures to help cushion the economy from the impact of COVID-19, Bank of Uganda also said it “directed” commercial banks to defer all discretionary payments such as dividends and bonus payments for at least 90 days from March.

“Consumer-facing sectors have been severely affected by social distancing measures and heightened uncertainty,” the bank said.

Manufacturing activity had declined due to disruptions to the inflow of raw materials, while trade had also taken a hit from a decline in external demand and supply chain disruptions, the bank said.