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Uganda Cuts Key Lending Rate by 1 Point to Support Economy

Uganda’s central bank cut its benchmark interest rate for a second consecutive month by 1 percentage point to support economic growth as inflation moderates.

The policy rate was lowered to 21 percent, Governor Emmanuel Tumusiime-Mutebile told reporters today in the capital, Kampala. The central bank raised the rate by 10 percentage points between July and November.

Inflation, which was little changed at 25.4 percent in February, may slow to below 10 percent by the end of the year, giving the central bank room to reduce borrowing costs, the governor said today. The Bank of Uganda is under pressure to ease policy after shop owners in Kampala closed for several days in January to protest soaring commercial bank rates that reached as high as 35 percent.

“The inflation trend that we’ve seen in the last few months will likely continue,” Tumusiime-Mutebile said. “Looking ahead, the Bank of Uganda will continue to conduct prudent monetary policy to bring inflation close to 5 percent over the medium term and also ensure a firm anchoring of inflation expectations.”

The shilling, which gained 18 percent in the past six months as the central bank boosted interest rates, fell 0.5 percent to 2,392 per dollar as of 1:09 p.m. in Kampala.

While rising food prices and an increase in power costs will keep the inflation rate elevated in the first six months of the year, it will fall at a faster pace after that, the governor said.

Growth in East Africa’s third-largest economy probably slowed to between 4 percent and 5 percent in the year through June 2012 from 6.7 percent in the previous 12 months, Adam Mugume, head of research at the central bank, said on Feb. 27.

Uganda, Africa’s second-largest coffee producer, is scheduled to become an oil producer with Tullow Oil Plc exploring for crude and gas in the Lake Albert Basin.

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