The Bank of Uganda (BOU), which cut its rate by 50 basis points in June and said it may need to reduce rates further, said today that its economic forecasts had remain unchanged and core inflation was forecast to remain in a range of 4 to 5 percent in the third quarter and rise to 5.5 to 6.5 percent over the next 12 months.
Uganda's headline inflation rate eased to 4.3 percent in July from 5.0 percent in June due to a 5.1 percent drop in food prices. Core inflation averaged 3.1 percent in July, well below the BOU's target, though it picked up slightly in the last three months due to exchange rate depreciation.
BOU said latest economic data shows continued favorable performance with growth in fiscal 2014/15 projected in a range of 5.5 to 6.5 percent as expansionary fiscal conditions are reflected in strengthening private consumption.
"Going forward, I expect economic growth momentum to be sustained, anchored by domestic demand with additional support from the improved external environment," the bank said, quoting its governor, Emmanuel Tumusiime-Mutebile.
Key domestic uncertainties remain the timing and extent of a pickup in domestic investment and the prospects for export demand, with the possibility that consumption and investment could be stronger than expected.
External risks include the considerable degree of uncertainty surrounding the outlook, with growth prospects for 2014 weaker than earlier expected but momentum is expected to improve in 2015.
"Financial and commodity markets also remain vulnerable to instability as geopolitical risks remain elevated," BOU said.