The
International Monetary Fund (IMF) has said central banks must access and
support critical sectors of the
economy if financial stability is to be maintained.
economy if financial stability is to be maintained.
In its update on global financial
stability yesterday, the IMF, said central banks must carefully assess
which markets are critical for maintaining financial stability as well
as design support programmes that could minimise moral hazard and risks
to such markets.
However, the IMF did not point out
which sectors must be focused on but urged central banks to continue
with provision of liquidity in order to prevent impairment of funding
conditions and functioning of major money, foreign exchange and
securities markets.
In Uganda, government has already
identified priority sectors, key among them, agriculture and
agri-business, industrialisation and manufacturing.
The call, which is contained in the IMF Financial Policy Priorities in
Response to the Crisis status update, also urges central banks to
maintain an accommodative monetary policy stance that will support the
recovery of global economy battered by the Covid-19.
“Central
banks should maintain accommodative monetary policy in pursuit of
inflation and financial stability through conventional and
unconventional tools,” the IMF said.
Over the two months, global financial conditions have eased
significantly following sharp tightening driven by a combination of
marked fall in interest rates and a strong rebound in risk asset market
valuations
Early this month, Bank of Uganda reduced the Central Bank Rate from 8 to 7 per cent as it sought to provide a basis for the recovery of the real economy.
Early this month, Bank of Uganda reduced the Central Bank Rate from 8 to 7 per cent as it sought to provide a basis for the recovery of the real economy.
Already, there has been a
noticeable reduction in interest rates even as experts have predicted a
fall in private sector credit.
The IMF also said that
central banks, especially in emerging and developing economies, should
use flexible exchange rates to absorb external pressures while countries
with adequate reserves, can lean against market illiquidity to mute
volatility in currency markets.
“In the face of an
imminent crisis, capital outflow management measures could be part of a
broad policy package, though such measures should be implemented in a
transparent manner, be temporary, and be lifted once crisis conditions
abate,” said the IMF.
moketch@ug.nationmedia.com
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