(Bloomberg) — Uganda’s central bank, which earlier cut interest rates, said it stands ready to act if a decision by the World Bank to halt new funding to the country for its passage of anti-LGBTQ legislation impacts the currency further.
The shilling has dropped around 3% since the World Bank said it would suspend new funding because the legislation signed into law in May contradicts its values on concerns that it may have budget funding implications. The act includes the death penalty for so-called “aggravated homosexuality,” defined in part as engaging in sex if the offender is HIV-positive.
“Until we get firm information from the Ministry of Finance regarding the exact amount of resources which are affected, it would be improper for me to speculate,” Deputy Governor Michael Atingi-Ego said in an online briefing on Tuesday after the monetary policy committee cut rates by 50 basis points to 9.5%. It was first rate cut since June 2021.
“But fundamentally speaking, we know that aid to Uganda is one of the factors which affect the exchange rate,” he said.
Undisbursed loans at end-December stood at $4.81 billion of which the World Bank made up 29%, followed by the International Monetary Fund at 16%, African Development Bank Group at 14% and other lenders the rest, Kampala-based Civil Society Budget Advocacy Group said in a statement.
“As the central bank, we’ll do what it takes to stabilize the exchange rate,” if needed, he said.
The MPC lowered rates because it expects inflation to continue to moderate and to support economic growth that it sees softening, according to the governor.
Annual headline and core inflation, which strips out food and energy costs, decelerated to 16-months lows in July of 3.9% and 3.8% respectively. The central bank targets inflation at 5% over the medium term.
The central bank said it expects the economy to grow in a range of 5% to 6% in the year through June, compared with its previous estimate of 6% to 6.5%.
—With assistance from Rene Vollgraaff.