Kampala, Uganda | THE INDEPENDENT | Bank of Uganda has cut interest rates, a move expected to boost businesses’ borrowing and consequently lift growth.
BoU Governor, Emmanuel Tumusiime-Mutebile announced on Monday that he was cutting the Central Bank Rate (CBR), which signals the direction of interest rates, from 10% to 9% for October, the first cut in more than four months.
Usually, the higher the CBR, the higher the interest rates in the market. However, a lower CBR means that interest rates fall.
This means that the governor expects commercial banks to follow suit and cut lending rates which are currently averaging at 21% per annum. The banks would then lend more to businesses thus boosting business activity and growth.
Mutebile told reporters in Kampala that he wanted to boost the economy which continues to grow but at a slow rate.
“Economic activity seems to have slackened in the first half of 2019 compared to the second half of 2018,” he said.
The Governor said that BoU’s high frequency indicator of economic activity, the Composite Index of Economic activity (CIEA), points to a moderation of economic activity in the first quarter of 2019/20 financial year.
“The outlook is uncertain, particularly as a result of the unfavourable global economy,” said Mutebile.
“Moreover, a combination of widening fiscal and current account deficits, coupled with public sector domestic financing needs, could exert pressure on the lending interest rates leading to further [slow] of economic growth.”
On the global outlook, trade wars between China and USA, the uncertainty around the impending exit of Britain from Europe pose a risk. These countries extend aid and provide loans to Uganda to build its infrastructure.
They are also a source of tourists and diaspora remittances. A slow down means these could be reduced.
In the region, Rwanda remains unresolved with the Gatuna border still closed affecting export earnings.
Government expects the economy to grow at 6.2% in the 2019/20 financial year.