The Bank of Uganda (BoU) cut its policy interest rate, the Central Bank Rate (CBR), by 200 basis points to 17 percent as a sharp drop in inflation gives it room to stimulate the economy.
The central bank said the "disinflationary momentum in the Ugandan economy strengthened in July," with both headline and core annual inflation rates falling sharply and inflationary pressures have been easing since the beginning of the year.
Uganda's economy remains below its potential level due to subdued domestic demand and the deteriorating global economic outlook, the bank said.
"To ensure that the real GDP growth of at least 5 percent can be achieved in 2012/13, it will be necessary to strengthen domestic demand, especially by stimulating a recovery of commercial bank lending to the private sector," the BoU said in a statement.
The central bank revised its inflation forecast down, with the inflation rate to be around 7 percent by the end of 2012 and then fall to around 5 percent in the first half of 2013.
Headline inflation fell to 14.3 percent in July from 18 percent in previous months and monthly increases have been between 0.4 and 0.3 percent, which translates into annual rates of less than 5 percent, the BoU said.
The bank also said it would maintain its band around the CBR at plus or minus 3 percentage points.
www.CentralBankNews.info
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