The Monetary Policy Committee (MPC) of Uganda’s central bank decided on Feb 4 to keep the benchmark lending rate unchanged at 11.5%, saying that the balance of risks has remained virtually unchanged from the previous month.
The central bank noted that the core inflation, which stood at 4.6% last month, was slightly lower than projected with core prices remaining flat in the three months to January due to exchange rate appreciation of 6.8% over the past year.
The country’s headline inflation slightly accelerated to 6.9% y/y last month from 6.7% in December. The bank noted that this was due to rising food crops prices by 21.4% y/y in January. However, this rise came mainly due to the relatively low prior-year base.
The central bank forecasted that the average headline and core inflation are likely to remain within the range of 5%-6% in H1 2014 and increase gradually above the target over the 12-month horizon due to absorption of the excess capacity. The bank also noted that the drought and a reversal of the exchange rate appreciation could boost inflationary pressures.
The central bank noted also that economic growth for FY 2013/2014 is projected at 6.0%-6.5% with domestic household demand slowly increasing. The bank likewise underscored that the improving global economic environment and higher fiscal stimulus, including public investment on infrastructure, will help spur economic growth. The domestic economy, however, faces a risk of a sharp demand shock in case the conflict in South Sudan prolongs, the central bank warned.
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