Uganda’s central bank trimmed its benchmark lending rate to 15 per cent from 16 per cent on Monday, saying inflation was expected to fall in the near term and signalling further cuts.
Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said in a news conference that annual and core inflation were expected to stabilise around the bank’s 5 per cent target by early 2017, though there were also concerns that price pressures could increase.
Overall inflation rose to 5.4 per cent year-on-year in May from 5.1 per cent a month earlier, while core inflation — which excludes food, fuel, electricity and metered water — increased to 7 per cent from 6.4 per cent.
Tumusiime-Mutebile said that Demand pressures on inflation remain subdued, and indications are that domestic demand is likely to remain constrained at least in the remaining part of 2016.
“Given that inflation is forecast to fall back to the policy target of 5 per cent over the next 12 months, BOU believes that there’s scope to continue easing monetary policy,” he added.
The central Bank of Uganda uses the core reading as its monetary policy measuring rod.
In April the central bank unexpectedly cut rates to 16 per cent from 17 per cent, saying it needed to boost growth after an improvement in the inflation outlook.
Tumusiime-Mutebile said there were, however, also risks inflation would rise in coming months due to rising food prices plus international oil prices and fuel tax increases.
The governor said the economy was expected to grow by 4.6 per cent in the 2015/16 fiscal year that ends this month, down from an earlier forecast of 5 per cent.
He attributed the downward revision to a weak external economic environment, soft commodity prices, tight financial conditions and subdued domestic demand.