The Bank of Uganda (BoU) has maintained the Central Bank Rate (CBR) for the month of October at 6.5 percent.
BoU says this is to sustain economic recovery as the country reels from the effects of the second Covid-19 lockdown in June 2021.
“The second wave of the Covid-19 pandemic interrupted the recovery of the economy and real GDP growth momentum is expected to have declined in the September 2021 quarter as a result of the COVID-related restrictions, although by less than the first national lockdown in the second quarter of 2020,” BoU said on Thursday, October 14, 2021.
According to BoU, with the ebbing of the second wave, a phased relaxation of the pandemic-related restrictions, and improving vaccine coverage, economic activity is gradually normalising.
“Indeed, the high-frequency indicators of economic activity for August and September 2021 suggest that the economy is pulling out of the Covid-19 second wave impact. However, some contact-dependent sectors that faced the brunt of the pandemic continue to face difficult conditions,” BoU said.
The Central Bank says economic growth will depend on the release of pent-up demand, a boost to investment activity from the government’s focus on infrastructure and support to sectors that have been more adversely affected by the pandemic, and accommodative monetary conditions.
Economic growth is projected in the range of 3.5-3.8 percent in Financial Year (FY) 2021/22, slightly lower than the August 2021 round of forecast.
However, as vaccination rates increase further and the health-related restrictions are eased, the economy is expected to bounce back strongly.
BoU projects economic growth at 5.5-6.0 percent in FY2022/23, increasing to 6.5-7.5 percent in the medium-term (2 to 3 years ahead).
BoU says a rebound of economic activity will be sustained by an acceleration in private consumption, strong growth in external demand, a gradual return of tourism, and foreign and domestic private investment in the oil sector.
“The outlook remains overcast by the future path of the pandemic, especially a major mutation of the virus that could severely undermine vaccine effectiveness and delay both domestic and global economic recovery,” BoU says.
Moreover, considerable uncertainty exists regarding the longer-run economic impact of the COVID-19 pandemic.
Furthermore, private sector credit extension remains sluggish due to perceived risk that continues to significantly impair private investment, compromising the quality of financial market information and lenders’ ability to assess the viability of borrowers and investment projects.
In addition to spillovers from the rising commodity prices, especially of crude oil and other inputs, global supply chain disruptions could restrain economic growth in the near-term.
Disinflation has persisted since October 2020, in part reflecting spare capacity in the economy. Headline and core inflation averaged 2.3 percent and 3.1 percent, respectively, in the 12 months to September 2021, which is below the BoU’s medium-term target of 5 percent.