For the second time in 3 months, Bank of Uganda (BoU) has reduced the Central Bank Rate. The rate has been reduced to 7% in June 2020 from 8% in April 2020. The Central Bank said the reduction was based on the current and evolving macroeconomic situation.
Releasing the June Monetary Policy Statement for June today, BoU Governor, Prof. Emmanuel Tumusiime-Mutebile said consistent 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 noted 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. Commercial banks are expected further reduce their lending rates that are currently inhibitive to business growth.