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Uganda's Central Bank has lowered its policy rate by one percentage point to 16 per cent in its bid to shore up an economy whose growth contracted during the first three months (January-March) of this year.


The Bank of Uganda (BoU) has, through reduction in the benchmark lending rate -- Central Bank Rate (CBR)--, signalled to commercial banks to reduce their lending rates, currently averaging 24.29 per cent, in order to encourage spending by households and businesses, and boost economic activities.


"Given that the inflation outlook has improved and to ensure that real economic growth remains close to potential, the BoU believes that it is warranted to cautiously ease monetary policy," said Emmanuel Tumusiime-Mutebile, BoU's governor in a statement Tuesday.


Prof Tumusiime-Mutebile said though the economy has continued to grow at a moderate pace economic acidity was lower in the first quarter of 2016 compared to the same period last year.


He said Uganda's import-export balance would also remain vulnerable to the turbulences in the global economic environment in the medium-term.


These turbulences include declining commodity prices and slowdown in growth of emerging market economies.


The country revised downwards its growth forecast for the 2016/17 fiscal year to 5.5 per cent from 5.8 per cent citing global economic weakness and volatility in the financial markets.


Uganda's headline inflation dropped to 6.2 per cent in March from 8.5 per cent in December 2015.


Core inflation fell to 6.9 per cent from 7.6 per cent in a similar period.


BoU expects that both headline and core inflation would remain stable in the range of 6.5 per cent, plus or minus one percentage point, during the first half (January-June) of this year, and then decline gradually to the medium term target of five (5) per cent in the first quarter of 2017.


In February, BoU maintained the CBR at 17 per cent to tame persistent inflationary pressures that were choking the economy.


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