Uganda holds rates, sees easing later this year

Uganda’s central bank held interest rates at 21 percent on Wednesday and put off any immediate easing, citing jumps in food prices, but promised it would make a fresh attempt to cut borrowing costs later in 2012.The bank’s Governor Emmanuel Tumusiime-Mutebile said recent jumps in prices of food could go on till July, compounding the risk to inflation posed by oil prices.But he said that Bank of Uganda (BoU) recognised that real economic growth was below potential, pledging to cut rates when the risks to inflation subsided.“To help stimulate growth, BoU expects to reduce the central bank rate later in 2012 once the risks to the inflation outlook have receded,” he told a news conference.East African economies hit by a drought-fuelled surge in inflation last year have tentatively begun efforts to cut rates back in aid of boosting domestic growth.Currency markets, however, which are a key influence on prices through imports, have remained very sensitive to any move to reduce the premium for holding the Ugandan and Kenyan shilling.The rate decision on Wednesday was in line with market expectations and there was no immediate reaction. Razia Khan, head of Africa research at Standard Chartered said non-food inflation remained sticky, adding that inflation would fall gradually into single digits after September. “The exchange rate will continue to be a key determinant of policy decisions in the future,” she said Month-on-month food inflation averaged 7.2 percent in the last three months compared with -2.9 percent in the three months to January 2012, spreading the pressure over to core inflation, he said. “Though oil prices eased in April, concerns of supply shocks which could cause oil prices to surge higher remain elevated,” Tumusiime-Mutebile said.The governor acknowledged the bank might miss its target of inflation falling to single digits by the end of the year. “Revised inflation forecasts for December 2012 and June 2013 indicate inflation in the ranges of 8-12 percent and 5-7 percent respectively,” he said.Year-on-year headline inflation fell to 20.3 percent in April from a revised 21.1 percent in the previous month.

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Uganda holds rates, sees easing later this year