August 15, 2019 / 9:38 AM / 3 months ago

UPDATE 2-Uganda central bank holds key lending rate, credit growth to support economic expansion

(Adds inflation projection, background)

KAMPALA, Aug 15 (Reuters) - Uganda’s central bank kept its main interest rate at 10.0% on Thursday and said an economic expansion had slowed in the first two quarters of this year but higher credit growth and public infrastructure spending supported the outlook.

It is the fifth time in a row that the bank has left its key lending rate unchanged.

Inflation was 2.6% year-on-year in July, down from 3.4% in June, while core inflation was down to 3.5% from 4.9% in June.

Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said economic growth the year through next June was projected at 6% to 6.3%, also supported by strong domestic demand and an improved agriculture performance.

He said there were downside risks, however.

“Weather-related constraints to agricultural production and delays in implementation of public investment programmes could dampen economic activity,” he told a news conference.

Major infrastructure investments in the East African country include a crude oil pipeline and domestic refinery, hydropower dams, expressways and construction and expansion of airports.

Tumusiime-Mutebile said annual core inflation was projected to edge up and peak at about 6.5% in the fourth quarter of 2020, driven by stronger domestic demand.

The Bank of Uganda’s monetary policy targets a medium-term core inflation rate of 5%.

Risks to a favorable growth outlook, he said, could come from low demand for Uganda’s exports “due to a depressed global economy” that could weigh on investment flows and services such as tourism. (Reporting by Elias Biryabarema; Editing by George Obulutsa and Hugh Lawson)

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