UPDATE 1-Uganda central bank holds rates, says concerned about lending

Wed Apr 2, 2014 6:37am EDT

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KAMPALA, April 2 (Reuters) - Uganda's central bank left its key lending rate unchanged on Wednesday, even though inflation rose last month, citing concern about sluggish credit growth and weak exports.

Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said the economy is expected to grow 6 percent in the fiscal year 2013/2014, compared with 5.8 percent the fiscal year before. Growth should rise to 6.5 percent next fiscal year, he said.

"Given the outlook for the macro economy over the next 12 to 18 months, the Bank of Uganda believes that a neutral monetary policy stance is warranted in April 2014," Tumusiime-Mutebile told a news conference.

Inflation, however, rose to 7.1 percent in March from a revised 6.8 percent a month earlier, the Uganda Bureau of Statistics said on Monday. It was the first time inflation had edged above 7 percent since October 2013.

Tumusiime-Mutebile said annual core inflation is forecast to increase gradually over the course of next 12 months, to a range of 6 percent to 7 percent by April 2015.

The central bank has held its key lending rate since cutting it to 11.50 percent in December.

Tumusiime-Mutebile added that one of the main headwinds to the economy was the growth in commercial lending.

"Growth of commercial bank credit to the private sector picked up slightly in February 2014 but remained sluggish, with year-on-year growth at 6.8 percent, which was below the Bank of Uganda projections at the beginning of 2013/14," he said.

Traders said the central bank was prudent to hold rates.

"We think a rate hold was possibly the right move, because although there was a rise in inflation, the more urgent need is to boost the growth momentum, which would have been undermined by a rate hike," said Faisal Bukenya, head of market making at Barclays. (Reporting Elias Biryabarema; writing by Drazen Jorgic; editing by Larry King)

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