Uganda's central bank held its Central Bank Rate (CBR) steady at 11.5 percent but softened its warning about inflation, saying it expects headline and core inflation to remain in the 5-6 percent range in the first half of this year and then rise only gradually above the bank's target over the next 12 months as excess capacity is absorbed.
In today's policy statement, the Bank of Uganda (BOU) omitted last month's stern warning that it would take "appropriate action" to ensure than core inflation remains around the bank's 5.0 percent target.
However, the central bank still noted there were several risks to inflation, including the dry spell in parts of the East African region that might affect food prices along with a reversal of the current exchange rate appreciation that could strengthen inflationary pressures.
Uganda's core inflation, which excludes food, energy and utilities, eased to 4.6 percent in January from 5.7 percent in December, with core prices virtually flat in the three months to January due to exchange rate appreciation of about 6.8 percent over the last 12 months.
Headline inflation rose to 6.9 percent in January from 6.7 percent due to a rise in annual food crop inflation to 21.4 percent form 12.7 percent.
The BOU last cut its CBR rate by 50 basis points in December after cutting the rate in June and then raising it again in September.
The BOU reiterated its forecast for economic growth in the current 2013/14 financial year, which began on July 1, to range between 6.0 and 6.5 percent, as household demand is slowly gaining traction and expected to continue to rise with banks' credit to households rising by 38 percent in December compared with a 13 percent contraction at the same time in 2012.
The BOU expects this buoyant credit to support growth going forward, on top of fiscal stimulus and public infrastructure investment, but cautioned that the economy faces risks if the conflict in South Sudan is sustained.
Uganda's economy contracted by 0.6 percent in the third calendar quarter from the second quarter for annual growth of 2.2 percent, down from a rate of 5.8 percent in the second quarter.