KAMPALA (Reuters) - Uganda's central bank held interest rates on Thursday, treading a path between managing inflation and supporting an economic upturn it said would likely lead it to cut borrowing costs in the coming year.
With the country's currency under pressure, traders and analysts had mostly expected the Central Bank of Uganda to leave the key lending rate at 12 percent - ending a run of growth-boosting cuts that began last June when the base rate was 21 percent.
The bank said leaving rates unchanged would allow it to encourage economic growth while keeping inflation - which ticked up in December - around its medium-term target of 5 percent.
The bank also said the economy had grown faster than projected since the first quarter of 2012.
The Ugandan shilling weakened slightly after the rate announcement, falling 0.1 percent to 2697/2707 per dollar, a day after the central bank intervened to prop it up after it fell to a five-week low against the dollar.
Annual inflation rose last month to 5.5 percent from 4.9 percent in November, which the bank said was due to seasonal demand.
The bank's policy stance was "accommodative and supportive of economic growth as well as anchoring inflation expectations around the medium-term target," its acting deputy governor Justine Bagyenda told a news conference.
It had cut rates by 50 basis points in early December, citing sluggish economic growth.
Bagyenda said on Thursday that annualised economic growth in the last three quarters of 2012 had, at 5.2 percent, been "much higher than previously projected".
However, private sector credit growth remained subdued partly on account of the high lending rates on shilling loans, he said.
With rates of economic and credit growth likely to pick up later in 2013, "I expect a further reduction in lending rates," he added.
Analysts also saw room for further easing, and said the decision to hold rates this time was not surprising.
"The decision was in line with our expectations," said Mark Bohlund, a senior economist for IHS Global Insight.
"We still see potential for further monetary easing in the first half of 2013 as we are forecasting inflation to dip again amid sluggish domestic demand and limited pressure from food and energy prices."
Uganda holds key rate with eye on growth, inflation
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Uganda holds key rate with eye on growth, inflation
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Uganda holds key rate with eye on growth, inflation
