KAMPALA: Uganda held its main interest rate at 12 percent for the fourth month running, treading a path between curbing inflation and supporting economic growth it now says may reach 6 to 7 percent - higher than earlier forecast.
The central bank opted for a neutral policy stance as the medium-term inflation forecast was still in line with its 5 percent target, and a recovery of real output was gaining momentum, bank Governor Emmanuel Tumusiime-Mutebile said on Wednesday.
"There are signs of increased buoyancy in the economy," he told a news conference.
"I'm impressed with the recent forecasts clearly we're recovering from the problems of 2011-12 and if the rate of this economic growth continues then 2012-13 (July-June) will probably be in the range of 6-7 percent."
The bank's previous forecast for growth this year was 4.3 percent which it said was below the economy's potential growth rate of seven percent.
Tumusiime-Mutebile said the economy grew 4.1 percent in the first half of the 2012-13 financial year.
"Preliminary quarterly GDP data for the first half of 2012-13 indicate that real growth accelerated in that period, driven by strong growth in the services, construction and manufacturing sectors.
"It is possible that the negative output gap that characterised the economy in 2011/12 has narrowed significantly," he said.
Currency and fixed income traders in the Ugandan capital had broadly expected the central Bank of Uganda (BoU) to leave its key rate unchanged after inflation rose in March.
The Ugandan shilling was steady at 2,590/2,600 per dollar at 1140 GMT, unchanged from the previous day.
"Expect the UGX (Ugandan shilling) to be supported by this decision," Razia Khan, Standard Chartered head of research for Africa, said.
Mark Bohlund, senior economist Sub-Saharan Africa at IHS Global Insight said the decision was expected, given that the core inflation rate has accelerated in recent months and is likely to remain above the central bank's medium-term target in the near term.
"I still do not preclude that we have seen the end of the easing cycle, but I think it is likely that we would have to see a deterioration in the economic growth outlook to motivate further rate cuts as the core inflation rate is likely to remain above target for the remainder of the year according to our projections," he said.
Some analysts said rising inflation would hold off any further rate cuts this year.
"There is little in here that makes us change our view that the CBR is likely to remain on hold through to the end of 2013," Khan said.
Driven by a surge in food and non-food prices, year-on-year headline inflation in East Africa's third biggest economy rose to 4.0 percent in March from a revised 3.5 percent the previous month.
Although the overall inflation has been low in recent months, underlying inflation has been above target since February, leading to the cautious stance by policymakers in holding steady the Central Bank Rate (CBR).
During March core inflation which excludes food, fuel, electricity and metered water - rose to 6.8 percent from a revised 5.6 percent in February.
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