Uganda Central Bank Leaves Benchmark Rate Unchanged at 12%

Uganda’s central bank left its benchmark interest rate unchanged for the first time since May, even after inflation accelerated last month, to spur lending and support the currency.

The Bank of Uganda kept the central bank rate at 12 percent, Justine Bagyenda, the acting deputy governor, told reporters today in the capital, Kampala.

The bank cut rates nine times last year as it seeks to stimulate an economy whose growth slowed to 3.2 percent in 2011-2012, less than half the previous year’s pace. Inflation accelerated to 5.5 percent last month from 4.9 percent, driven by higher energy costs, and the shilling has slid to the lowest in more than a year.

The central bank held the interest rate steady because inflation accelerated “marginally” and it wants to “encourage domestic growth,” Robert Katabaire, a researcher at the Kampala-based Dyer & Blair Uganda Ltd., said by phone.

The central bank expects growth of between 4 and 4.5 percent in the 12 months through June. It trimmed the forecast from 5 percent because of slow credit growth and an aid freeze by donors including the U.K. and Scandinavian countries, which have cited embezzlement of funds.

Economic Recovery

“Stronger economic growth recovery should start in the later part of 2013” as last year’s cycle of monetary easing continues to help spur commercial lending, Bagyenda said.

The central bank raised its benchmark rate as high as 23 percent in 2011 to halt a plunge in the shilling and a surge in inflation. Its reductions since then haven’t been matched by commercial lenders.

Stanbic Uganda Ltd., the biggest bank, said last month it would cut its prime lending rate by 50 basis points to 20 percent this month. Barclays Bank Plc’s local unit said it reducedits rate by 120 basis points this month to 19.8 percent.

The shilling fell 8 percent against the dollar last year, making it Africa’s fifth-worst performing currency.

It was trading 0.9 percent weaker at 2,701.25 a dollar by 1:13 p.m. in Kampala, poised for its lowest closing level since Oct. 25, 2011, according to data compiled by Bloomberg.

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