Uganda holds key lending rate at 10.0%

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Uganda’s central bank kept its main interest rate at 10.0 per cent on Thursday, citing higher credit growth and public infrastructure spending for the outlook.

Bank of Uganda Governor Emmanuel Tumusiime-Mutebile in a news conference in Kampal also projected economic growth during the year to June 2020 at between six per cent and 6.3 per cent.

The governor said although an economic expansion had slowed in the first two quarters of the year, the growth would be supported by strong domestic demand and an improved agriculture performance.

He said there were downside risks, however.

“Weather-related constraints to agricultural production and delays in implementation of public investment programmes could dampen economic activity,” he told the conference.

It is the fifth time in a row that the bank has left its key lending rate unchanged.

Inflation was 2.6 per cent year-on-year in July, down from 3.4 per cent in June, while core inflation was down to 3.5 per cent from 4.9 per cent in June.

Major infrastructure investments in the East African country include a crude oil pipeline and domestic refinery, hydropower dams, expressways and construction and expansion of airports.

Tumusiime-Mutebile said annual core inflation was projected to edge up and peak at about 6.5 per cent in the fourth quarter of 2020, driven by stronger domestic demand.

The Bank of Uganda’s Monetary Policy targets a medium-term core inflation rate of five per cent.

He said risks to a favorable growth outlook could come from low demand for Uganda’s exports “due to a depressed global economy” that could weigh on investment flows and services such as tourism.