By Nicholas Bariyo
KAMPALA, Uganda--Uganda's central bank cut its benchmark lending rate by 50 basis points on Wednesday, the first cut in 12 months as the country seeks to spur growth amid renewed economic disruptions caused by a surge in coronavirus infections.
The central bank cut the key lending rate to 6.5% from 7%, noting that despite subdued inflation, the resurgence of the coronavirus and more contagious variants pose fresh threats to growth. Uganda imposed a new lockdown earlier this month to stem surging coronavirus infections.
"Contraction in private sector investments is persisting, partly reflecting heightened Covid-19-induced uncertainties," Central Bank Governor Emmanuel Tumusiime-Mutebile said in a statement.
After posting a 1.1% contraction last year, the central bank expects economic growth to rebound to around 3.3% in 2021.
In the 2020-21 fiscal year, Ugandan coffee production--the country's top-earning export crop--jumped nearly 60%, aided by maturing plantations and favorable weather conditions. Furthermore, France's TotalEnergies SE hopes to commence oil production at its Ugandan oil fields in the next three and a half years.
However, the central bank notes that sector unevenness of economic recovery and a weak level of business investment requires monetary policy support. Slow Covid-19 vaccinations also continue to pose a risk to the country. Less than 40,000 people are fully vaccinate across the country of 42 million people.
Analysts at South Africa-based NKC African Economics said the central bank will likely maintain an accommodative monetary policy for the rest of the year as the country recovers from the effects of the pandemic.
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(END) Dow Jones Newswires