Uganda's central bank kept its Central Bank Rate (CBR) unchanged at 12.0 percent for the third month in a row, saying an increase in core inflation was temporary and inflation during 2013 should remain around the bank's medium-term target of 5.0 percent.
The Bank of Uganda (BOU), which cut rates by 11 percentage points in 2012 as inflation dropped, said economic growth should improve slightly this year with downside risks emanating from continued subdued private sector credit growth and high lending rates, which impact private sector spending.
"The overall outlook is for subdued domestic demand and the persistence of current excess capacity into the next financial year," the bank said in a statement from Feb. 4.
Uganda's headline inflation rate eased to 4.9 percent in January, the fifth month in a row with single digit price rises, down from 5.4 percent rate in December, due to a drop in food prices.
But core inflation rose to 5.6 percent from 4.6 percent in December, bringing the rise in core inflation in the last two months to 1.1 percent, month-on-month, the bank said.
Uganda's Gross Domestic Product expanded by 1.8 percent in the third quarter of 2012 from the second quarter for annual growth of 2.8 percent, down from 3.2 percent in the second quarter.
While holding the benchmark rate steady, the BOU said it would narrow the band around the central bank rate by one percentage point to plus/minus 2 percent points to reduce volatility in short-term interest rates. The margin on the rediscount rate and the bank rates will be cut to 3 percentage points and 4 percentage points, respectively.