- Published on Tuesday, 03 July 2012 15:01
- Written by Nkwasibwe Geofrey
- Category: news
- Hits: 188
KAMPALA, July 3 - The Bank of Uganda cut its benchmark lending rate on Tuesday for the second month in a row and said more gradual policy easing was on the cards as inflation slowed further in the coming year.
Bank of Uganda Deputy Governor Louis Kasekende told a news conference he was confident the core measure of inflation would be in single digits by the end of this year and hit the bank's medium-term target of 5 percent during 2013.
"The expected fall in inflation over the course of the next six to 12 months will allow a gradual reduction in policy interest rates," Kasekende said.
The bank cut its Central Bank Rate to 19 percent on Tuesday from 20 percent in June, down from a peak this year of 23 percent.
Uganda's year-on-year inflation rate slowed to 18.0 percent in June from 18.6 percent a month earlier and an October peak of 30.4 percent, prompting some analysts to forecast another rate cut at Tuesday's meeting.
The Ugandan shilling was unmoved by the rate decision with commercial banks quoting it at 2,470/80 to the dollar both before and after the central bank announcement.
The main driver behind the June inflation slowdown was a 3.4 percent month-on-month fall in food prices and the central bank said the cost of food items would probably decline further in the short term.
The core rate of inflation, which excludes food crops, fuel, electricity and metered water, also slowed in June, falling to 19.5 percent from 21.2 percent.
Kasekende said real output in the east African country was still below potential, growth in shilling-denominated bank loans had been weak since September 2011 and lacklustre aggregate demand would also dampen inflation pressures.
"The main threat to further disinflation emanates from a possible weakening of the exchange rate, given Uganda's persistently large trade deficit and the volatile nature of capital flows to frontier markets such as Uganda," he said.