Uganda's central bank held its Central Bank Rate (CBR) steady at 12.0 percent, saying a neutral monetary policy stance was warranted in light of an expected stabilization of core inflation around the central bank's 5.0 percent target and underlying positive economic momentum.
The Bank of Uganda (BOU), which slashed its key rate to 12 percent from 23 percent in 2012, said real growth in Gross Domestic Product is projected at 5.3 percent for the financial year 2012/13, which ends June 30, rising to 6-7 percent in 2013/14.
The BOU's governor, Emmanuel Tumusiime-Mutebile, said in a statement that the country's output gap had narrowed and annual growth in monetary aggregates showed signs of recovering. Commercial bank lending had been restrained by the closure of the Land Registry and other structural factors, but he expects growth in lending to accelerate and lending rates to decline further.
"Nonetheless, there are potential risks of stronger inflationary pressures emanating from both domestic and external factors," he said, noting global economic uncertainty, upside risks to global commodity prices, and a stronger stimulus to domestic demand from public and private sectors.
Energy prices are also projected to rise in the near term, he said, adding this would have a one-off impact on prices "but it may also have more persistent second round effects on inflation."
Uganda's headline inflation rate eased slightly to 3.4 percent in April from 4.0 percent while core inflation fell to 5.8 percent from 6.8 percent in March. Annual non-food inflation was stable at 6.8 percent, the central bank said.
Last month the BOU said core inflation was forecast to remain 1-2 percentage points above the bank's target for the next few months and then fall back toward the bank's target later this year. The bank dropped this reference in today's statement.
In response to a rise in headline inflation to an all-time high of 30.5 percent in October 2011, the BOU raised rates sharply that year to a high of 23.0 percent. Inflation then plunged over the next 12 months and hit a two-year low of 3.5 percent in February this year and the BOU cut rates by 1100 basis points. The BOU has held rates steady since December last year.