April 9, 2018 / 10:42 AM / 7 months ago

UPDATE 1-Uganda central bank leaves key rate unchanged, says inflation risk balanced

(Adds details, quotes, background)

KAMPALA, April 9 (Reuters) - Uganda’s central bank left its key lending rate at 9.0 percent on Monday, saying that risks to inflation were balanced and inflation was expected to rise gradually.

In February, the central bank cut its benchmark lending rate by 50 basis points to 9.0 percent, its lowest ever, saying lending for small businesses remained costly despite recent policy easing.

Bank of Uganda Governor Emmanuel Tumusiime-Mutebile told a news conference that inflation was expected to rise to around 5 percent by the end of 2019.

“The economic growth outlook is more positive than was forecast at the Monetary Policy Committee (MPC) meeting of February 2018 and there are signs of increased business confidence,” he said.

Inflation edged down to 2.0 percent year-on-year in March from 2.1 percent the previous month as some food prices declined.

Tumusiime-Mutebile said gross domestic product was projected to grow an average 6.5 percent in the next three years. The output gap was estimated at about minus 2.0 percent in fiscal year 2016/17 (July-June), but the gap was expected to close in 2018/19.

“The forecast gradual recovery of GDP is premised on favourable external scenario, strong private and public investments, improved agricultural productivity, and the absence of significant macroeconomic imbalances,” he said.

“There are nonetheless downside risks to this outlook, as indicators of aggregate demand including fiscal absorption and private sector credit growth remain weak.” (Reporting by Elias Biryabarema, Writing by George Obulutsa, editing by Larry King)

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