By Nicholas Bariyo

KAMPALA Uganda--Uganda's central bank held its benchmark lending rate at 6.5% on Thursday as Africa's top coffee exporter maintains interest rates at record lows to spur growth, weighed down by the Covid-19 pandemic.

Central bank governor Emmanuel Tumusiime-Mutebile said in a statement that the latest wave of the pandemic had interrupted the recovery of East Africa's third-largest economy, due to restrictions aimed at containing the spread of infections.

"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" Mr. Tumusiime-Mutebile said.

Battered by Covid-19 containment measures, Uganda's economy contracted 1.1% during 2020 from growth of 6.8% the previous year.

The central bank expects economic growth to pick up as vaccination rates increase, and expand by as much as 6.5% to 7.5% in the next two to three years, when oil companies start commercialization of the country's vast crude reserves, estimated to contain some 6.5 billion barrels of oil.

Uganda, which grows mainly the bitter-tasting robusta coffee variety used in blends and instant drinks, imposed a six-week lockdown in June to contain rising coronavirus infections. Despite the lockdown measures, coffee exports from Uganda have surged by more than 20% in the first 11 months of the 2020-21 season, boosted by maturing plantations and favorable weather.

Write to Nicholas Bariyo at Nicholas.Bariyo@wsj.com

(END) Dow Jones Newswires

10-14-21 0803ET