Uganda inflation slows in June

Falling food prices in Uganda helped to slow year-on-year inflation to 18 percent in June, the government said on Friday, signalling that policymakers will cut interest rates when they meet on July 2.

During the second half of last year, the central bank raised rates to well above 20 percent to control inflation which peaked at about 30 percent in October. It has reduced rates gradually this year and cut by 100 basis points in June to 20 percent.

Headline inflation fell, for the fourth month in a row, from 18.6 percent in May. The food price index fell by 3.4 percent.

"This was mainly due to increased supplies to the market," the statistics office said, citing the prices of plantain, Irish potatoes, sweet potatoes and green vegetables.

Core inflation also slid to 19.5 percent during the month from the 21.2 percent, the Uganda Bureau of Statistics said. Monthly headline inflation declined by 0.5 percent, compared with a 0.1 decline in May.

"(This) supports our view that we will see a further 100 basis points rate cut by the BoU next week. Having already cut substantially, there is of course some chance that they only do 50 basis points," said Razia Khan, head of Africa research for Standard Chartered in London.

Annual food inflation declined to 12.7 percent during the period from 13.7 percent in May, the statistics office said.

Still, traders said the fall in inflation would have a minimal impact on the shilling.

"Inflation is in line with market expectations. Further to that we expect a 50 to 100 basis point cut to spur growth of the economy. The market had already priced in a fall," said a trader with a commercial bank in Nairobi who trades Ugandan assets.

Like other countries in east Africa, the coffee-exporting nation - the third biggest economy in the region - was hit by high prices and a weak currency last year.

Riots over high prices throughout last year peaked in April 2011, and traders shut their shops early this year to protest against high interest rates.