UPDATE 2-Ugandan central bank cuts rates, expects easing inflation pressure

Mon Jun 19, 2017 12:33pm GMT

* Overall inflation rose to 7.2 pct in May

* Growth in the fiscal year to June is seen at 3.9 pct

* Analyst says 1 pct rate cut was "shock" move (Adds economic analyst comment)

By Elias Biryabarema

KAMPALA, June 19 (Reuters) - Uganda's central bank cut its key lending rate to 10 percent from 11 percent on Monday, saying a stable shilling currency and subdued domestic demand had helped ease core inflationary pressures.

The bank's medium-term target for core inflation - which strips out food, fuel, metered water and electricity prices - is 5 percent. The annual rate rose to 5.1 percent in May from 4.9 percent in April.

Bank of Uganda (BoU) Governor Emmanuel Tumusiime-Mutebile said a supply side shock that caused inflation to rise in the last six months was expected to wane in the three months to September.

"With domestic inflationary pressures remaining subdued and given the continued growth prospects, the BoU judges that continued easing of monetary policy is appropriate," he told a news conference.

"This will be consistent with achieving the core inflation target ...and will also support the recovery of real output in the economy."   Continued...

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