Uganda's central bank cut its central bank rate (CBR) by 50 basis points to 11.5 percent, saying an an accommodative stance was warranted due to an expected stabilization of core inflation around the bank's target and the need to further support private sector investment.
The surprise rate cut comes a month after the Bank of Uganda (BoU) described its stance as neutral and a warning in October that it could raise rates if core inflation were to accelerate. The BoU raised its rate by 100 basis points in September.
The central bank said it would continue to assess global economic and financial developments and "take appropriate actions to maintain future average annual core inflation around the Bank's medium-term target of 5 percent."
Uganda's headline inflation rate fell to 6.8 percent in November from 8.1 percent in October with core inflation easing to 7.0 percent from 7.2 percent. Food crops inflation was a minus 4.3 percent in November, higher than a minus 1.1 percent in October.
The BoU forecast inflation edging further down in the next two to three months due to the impact of the crop harvests to about 5.5-6.5 percent but then rising to 6-7 percent in the second half of 2014.
Although the bank said there were potential risks to inflation from domestic demand pressures and the global economic recovery, it expects core inflation to stabilize around 5 percent in the medium term.
"Real economic activity continues to show signs of recovery, in part boosted by the accommodative policy stance and public investment," the bank said, adding that growth should benefit from private consumption and investment activity.
"Nonetheless, economic growth remains below potential and downside risks pertaining to the uncertain global economic environment persists," the BoU added.