Central bank holds lending rate at 12 percent

Bank of Uganda has held its key interest rate at 12 percent for the fifth straight month on Friday, citing upside risks to inflation and positive momentum behind economic growth.

Bank of Uganda (BoU) Governor Emmanuel Tumusiime-Mutebile told a news conference he expected private lending to grow and said commercial banks had room to lower their rates further.

A neutral monetary policy was warranted, he said, given upside risks to inflation due to higher energy costs and global commodity prices.

"In the medium-term, core inflation is expected to stabilise around the BoU target of 5 percent. Nonetheless, there are potential risks of stronger inflationary pressures," said Tumusiime-Mutebile.

"These include the uncertainty in the global economy, upside risks to the global commodity prices and a stronger stimulus to domestic demand from the public and private sectors."

While local market players had broadly predicted another rate hold, better-than-expected inflation data in April had opened the door to a potential cut, some analysts had forecast.

"A substantial gap has opened up between headline CPI (inflation) and the Central Bank Rate," said Razia Khan, head of Africa research at Standard Chartered in London.