Tuesday, March 5, 2013

Uganda holds rate steady, inflationary risks on the upside

    Uganda's central bank kept its Central Bank Rate (CBR) steady at 12.0 percent for the fourth month in  a row, saying upside inflationary risks had risen slightly but economic growth was below potential, credit growth was weak and the exchange rate stronger,  factors that mitigate inflationary pressures.
     The Bank of Uganda (BOU), which cut its CBR rate by 1100 basis points last year as inflation eased, said its forecast for "annual core inflation over the next 12-18 months remains largely unchanged at around 5 percent, though the upside risks have increased somewhat."
    Uganda's headline inflation rate eased to 3.4 percent in February from January's 4.9 percent due to lower food prices and annual core inflation was largely flat at 5.5 percent from January's 5.6 percent.
    "The monthly core inflation, however, accelerated, pointing to a buildup of core inflationary pressures that may need to be checked, if sustained," the BOU said in a statement.
    The central bank targets annual inflation of around 5 percent.
    The BOU said growth in monetary aggregates continued to recover at a modest rate but shilling-denomined loans to the private sector remained stagnant due to high lending rates and the difficulties facing companies.
    "Although real output is still below potential, real GDP growth is projected to gradually recover in 2013 and 2014; a projection which is supported by recent trends in the Composite Index of Economic Activity, that point to signs of increased buoyancy in the economy," the bank added.
    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. 



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