Uganda’s Central Bank keeps Lending Rate at 7%

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The Bank of Uganda (BoU) has resolved to maintain the benchmark lending rate at 7%, with the regulator saying that economic growth forecasts seem positive.

 “The economic recovery has gradually gained traction in line with projection for economic growth of above 3% in fiscal year 2020/21,” BoU governor Emmanuel Tumusiime Mutebile said in a statement.

He noted that social distancing measures continue to weigh heavily on certain activities of services sector, particularly in hospitality and tourism, while other sectors are still feeling the lagged effects of the economic downturn.

Certain economics sectors are still under partial lockdown, a situation which has limited full scale operation of businesses. The Central Bank projects annual growth rate to reach 3.3% in contrast to the sharp contraction of 6% in the quarter to June 2020.

Chief Economist Africa and Middle East at Standard Chartered Bank’s Razia Khan Projects the central bank is likely to embark on policy rate tightening around April 2021. “We now expect only 200bps of tightening in 2021, to 9.0%,” she said

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“Risks to the economic outlook in the near term have eased as a result of signs of a rebound in both foreign and domestic demand which could be bolstered by optimism associated with Covid-19 vaccine development,” Mutebile said.

However, economic growth is projected to remain below its potential until FY2023/24 on the back of persistent geopolitical tensions, global trade policy uncertainty and technology fractions pose challenges to domestic economic growth.

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