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By Elias Biryabarema
KAMPALA, Feb 15 (Reuters) - Uganda’s central bank cut its benchmark lending rate by 50 basis points to 11.5 percent as the effects of drought hit the economic outlook, its governor said on Wednesday.
Emmanuel Tumusiime-Mutebile said the economic growth forecast for the fiscal year from last July had been lowered to 4.5 percent from a previous forecast of 5 percent.
“Bank of Uganda judges that a further cautious easing of monetary policy is warranted to support economic activity,” he told a news conference, adding the cut was consistent with short-term inflation expectations.
Some inflationary pressures attributed to higher oil prices are expected in the short term, but headline inflation was expected to remain within the medium-term target of 5 percent, the bank said.
Stephen Kaboyo, of fund manager Alpha Capital Partners said the rate cut appeared to reflect policymakers’ view that “risks to a further downside to the real economy is more immediate than the risks to the side of inflation.”
Inflation climbed to 5.9 percent last month from 5.7 percent in December, driven by a surge in some food prices.
Uganda is suffering from a drought across East Africa that has sent prices of staple foods soaring to record or near-record levels and could lead to food shortages in some areas, the U.N. Food and Agriculture Organization (FAO) said on Tuesday
The interest rate cut is Uganda’s sixth in a row.
Policymakers began cutting the benchmark rate in April, bringing it back down from the peak of 17 percent reached as the bank battled a surge in prices.
Tumusiime-Mutebile said economic prospects were optimistic for the 2017/18 fiscal year with growth seen climbing again to 5.5 percent.
That faster growth momentum, he said, would be driven by “public infrastructure investment, a recovery in private sector investment and improvements in agricultural production.” (Reporting by Elias Biryabarema; Writing by Duncan Miriri; Editing by Robin Pomeroy)