KAMPALA - Uganda's central bank on Monday held its key lending rate at 12 percent for a second month as expected and said subdued domestic demand was a risk to growth in east Africa's third-biggest economy.

Governor Emmanuel Tumusiime-Mutebile said the Bank of Uganda's priority was to keep inflation anchored at around 5 percent.

"The downside risk to the economic outlook is the projection for continued subdued private sector credit growth and high lending rates, which have continued to impact on the private sector spending decisions," Tumusiime-Mutebile told a news conference in Kampala.

Year-on-year inflation slowed to 4.9 percent in January from a revised 5.3 percent a month earlier. But stubborn core inflation - which excludes food crops, fuel, electricity and metered water - reduced the scope for a rate cut, analysts had said ahead of Monday's Monetary Policy Committee meeting.