Uganda's central bank cut its Central Bank Rate (CBR) by 50 basis points to 12.0 percent as subdued inflationary pressure allows the bank to stimulate economic growth.
The Bank of Uganda, which has now cut its policy rate by 1100 basis points this year, said headline inflation "rose only marginally" in November and the bank forecasts that core inflation will stabilize around its medium-term policy target of 5.0 percent over the next 12 months as inflationary pressures are "currently subdued and are likely to remain so in the near term because of the negative output gap."
The bank said the November headline inflation rose to 4.9 percent from 4.5 percent in October while core inflation eased to 3.8 percent from 4.0 percent. The rise in headline inflation was driven by food crops, energy, fuel and utilities.
The bank said the prospects for growth in the 2012/13 fiscal year had weakened, with the main constraints weak demand, lack of private sector borrowing, the need to cut government expenditure in response to donor aid cuts and the difficult global economic outlook.
"With real GDP growth forecast to remain below potential, the negative output gap is expected to persist through 2012/13," the bank said.
Uganda's Gross Domestic Product contracted by 0.16 percent in the second quarter from the first for an annual shrinkage of 0.2 percent, down from annual growth of 2 percent in the first quarter.
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