Uganda Holds Key Rate as Subdued Demand Offsets Inflation Risks

Uganda’s central bank left its benchmark interest rate unchanged for the second month, as risks to higher inflation were offset by weak private-sector demand for credit.

The Bank of Uganda maintained the central bank rate at 12 percent, Governor Emmanuel Tumusiime-Mutebile told reporters today in the capital, Kampala. The bank cut the rate nine times last year from a record high of 23 percent.

“There are risks to higher inflation, which include commodity-price shocks and exchange-rate depreciation pressures given the weak current account balance,” he said. “This is balanced by continued weakness in domestic demand.”

The central bank expects growth in East Africa’s third-biggest economy to recover to between 4 percent and 4.5 percent in the 12 months through June, from 3.2 percent last year, the slowest pace in 25 years last year. It trimmed the forecast from 5 percent because of a lack of private credit growth and an aid freeze by donors including the World Bank and the U.K. after a government corruption scandal.

Annual inflation slowed to 4.9 percent last month from a revised 5.3 percent in December after prices of some food items declined, the Uganda Bureau of Statistics said on Jan. 31.

The shilling weakened 0.3 percent to 2,665 per dollar today, near the lowest level in five years, reached on Sept. 22, 2011. It fell 8 percent against the dollar last year, making it Africa’s fifth-worst performing currency.

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