Uganda's central bank maintained its Central Bank Rate (CBR) at 11.0 percent, saying core inflation is forecast to range between 2.0 and 4.0 percent over the next three months before rising to about 5 percent over the next 12 months, in line with its inflation target.
The Bank of Uganda (BOU), which cut its rate by 50 basis points in June, added that core inflation was expected to rise due to increased domestic demand and the pass-through of the depreciation of the shilling currency to domestic prices that is not yet complete.
The BOU added that there are still upside risks to inflation in the medium term, including stronger-than-expected domestic demand and further exchange rate depreciation.
Uganda's headline inflation rate rose to 2.1 percent in November from 1.8 percent in October while its Gross Domestic Product expanded by 2.37 percent in the first quarter of the year from the previous quarter for annual growth of 4.73 percent, up from 4.23 percent.
Uganda's economy is forecast to expand by 5.0-5.5 percent in the 2014/15 financial year, which ends June 30, compared with an estimated growth of 4.5 percent in 2013/14 according to the rebased GDP series recently released by the country's statistics office, the BOU said.
Economic growth will be supported by higher public and private investment and a recovery of domestic demand.
However, the BOU added that a weak global economy could undermine the country's growth prospects via demand for exports and inward investment flows.
The Ugandan shilling has depreciated some 10 percent against the dollar this year and was quoted at 2,770 to the dollar today, down from 2,525 at the start of the year.