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Bank of Uganda maintains key lending rate at 9%

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Bank of Uganda maintains key lending rate at 9%

The Bank of Uganda maintained its key lending rate at 9.0% and noted that inflation is expected to climb faster than originally projected.

"The downward trend in inflation experienced during the course of FY 2017/18 will gradually be reversed, with import prices rising reflecting a combination of a gradual increase in global inflation and the weakening of the shilling," the central bank said. The central bank still expects inflation to stay within its medium-term target of 5% in the next 12 months.

Uganda's annual headline inflation rate dropped to 1.7% in May from 1.8% in the prior month, while annual core inflation slipped to 1.1% from April's 1.6%.

Economic activity continues to improve and is projected to grow 5.8% in 2017/18, compared to the previous fiscal year's 3.9%, according to estimates released by the Uganda Bureau of Statistics. GDP is expected to further improve to 6% in the next fiscal year.

The country's current account weakened over the last three months due to higher imports, while a global strengthening of the U.S. dollar piled further pressure on the exchange rate. In 2017/18, the current account deficit is expected to grow to 5.3% of GDP from 3.4% in 2016/17.

The central bank also maintained the band on its key rate at plus or minus 3 percentage points and the margin on the rediscount rate at 4 percentage points on the central bank rate.