Inflation slows in April

Falling food prices slowed Uganda's headline inflation rate in the year to April but analysts still broadly expected the central bank to leave its key lending rate unchanged for a fifth straight month this week.

The central Bank of Uganda has maintained a cautious monetary stance in 2013, leaving its Central Bank Rate at 12 percent since December as it balances supporting growth and curbing inflationary pressures.

The year-on-year rate of inflation fell to 3.4 percent from 4.0 percent in March largely due to an acceleration in the decline of food prices. Food prices, which carry a 27.2 percent weighting in the consumer price index, fell 2.6 percent over the 12 months against a 0.9 percent fall a month earlier.

Razia Khan, head of Africa research at Standard Chartered, said the better-than-expected inflation performance this year, a more favourable oil prices compared with last year and the shilling's strenthening in 2013 were positive for policymakers.

"Given the latest data, the assessment of risks will be watched closely to gauge the likelihood of any resumption of the easing cycle, however modest," Khan said.

Faisal Bukenya, head of market making at Barclays in Uganda did not rule out a small rate cut but said the central bank's recent stance of mopping up liquidity signalled its apparent intent to hold the key rate steady.

"I don't see the central bank cutting the rate to push more cash into the market," Bukenya told Reuters. "In the unlikely event that we have a cut, it will be very small."

Core inflation, which excludes food crops, fuel, electricity and metered water, eased to 5.8 percent in April from 6.8 percent in March, the Uganda Bureau of Statistics said, leaving it above the bank's medium target of 5 percent. Reuters