Central Bank holds key lending rate at 11 precent

Uganda's central bank held its key lending rate at 11.50 percent on Tuesday, but said a decline in foreign aid was a source of uncertainty for the economy.

The Ugandan shilling has come under pressure since some Western countries and funding agencies announced aid cuts last week in response to President Yoweri Museveni's signing of an anti-homosexuality law.

Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said the bank would continue to intervene in the foreign exchange market to stem volatility as it had sufficient reserves to do so, amounting to about $3 billion.

"The magnitude and timing of possible declines in foreign aid are also a source of uncertainty for the balance of payments and the economy," Tumusiime-Mutebile told a news conference.

"We only intervene when we think it's necessary and the bank has adequate foreign reserves to intervene in our markets whenever necessary."

The central bank has held its key lending rate since cutting it to 11.50 percent in December.

Tumusiime-Mutebile said on Tuesday that there was potential risk from higher inflation especially from the shilling's depreciation and high food prices.

The year-on-year inflation rate dipped to 6.7 percent in February from 6.9 percent a month earlier, pushed lower by a slowdown in non-food costs.

Tumusiime-Mutebile said core annual inflation would be in the 4-5 percent range in the next few months, and increase to between 5.5 percent and 6.5 percent over the next 12 months. Reuters