Uganda’s central bank has dropped its policy rate from nine per cent announced in February 2020 to eight per cent for April, to counter the fallout from the coronavirus pandemic on commercial banks, micro deposit taking institutions, the economy and borrowers.

The one per cent rate cut appears modest compared with recent policy rate cuts of more than two per cent announced by some African and European central banks and the US Federal Reserve.

Lower interest rates are meant to cut banks’ funding costs, reduce borrowing costs boost consumer demand and restore economic growth in the wake of the damage caused by the pandemic.

There are signs of a global economic decline prompting financial bailout packages.

“The Covid-19 pandemic has led to a severe contraction in economic activity due to a combination of global supply chain disruptions, travel restrictions, measures to limit contact between persons, and the sudden decline in demand.

“Consumer-facing sectors have been severely affected by social distancing measures and heightened uncertainty, while the manufacturing sector has declined on account of disruptions to the inflow of raw materials,” reads the Bank of Uganda’s monetary policy statement issued on April 6.

Uganda’s economy is projected to grow by around 3-4 per cent in 2019/20, down from earlier forecasts of 6-6.5 per cent.

“The rate cut is within our expectations. I’m also interested in the rationale behind it while the additional measures announced by the central bank will help commercial banks cope with the difficult aftermath of the Covid-19 pandemic and also contribute towards economic recovery,” said Benoni Okwenje, general manager for Treasury Operations at Centenary Bank.