UPDATE 1-Ugandan central bank holds rates for fifth month

Fri May 2, 2014 5:40am EDT

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(Adds comment from deputy governor)

KAMPALA May 2 (Reuters) - Uganda's central bank held rates at 11.50 percent for the fifth month in a row on Friday because of relatively moderate inflationary pressures, a decision in line with forecasts.

Bank of Uganda, or central bank, last changed its rate in December, cutting 50 basis points to 11.50 percent and had said at the time that growth was below potential.

All three analysts asked said rates would be kept steady, and one said the bank would be wary that subdued credit to private business could put pressure on growth.

Deputy central bank governor Louis Kasekende, who announced the rate decision, said growth in 2013/14 was expected to be 5.7 percent. That is slightly lower than the 6 percent officials had previously predicted.

"Inflationary pressures are expected to remain relatively moderate in the near term. However, annual core inflation is expected to rise gradually but remain within the band of 5 percent plus/minus 2 percentage points," Kasekende said.

Headline inflation slipped to 6.7 percent in the year to April from 7.1 percent in the year to March. It has hovered steadily around 7 percent since late last year.

Kasekende said the 12-month forecast for annual core inflation was very close to the bank's medium term target of 5 percent, warranting a neutral monetary policy stance.

On growth, Kasekende said agriculture was weaker than expected, but would pick up in the remaining part of 2014.

"Growth in real economic activity for the fiscal year 2014/15 is forecast to remain relatively strong, in the range of 6.0-6.5 percent, supported by public investment in infrastructure, domestic demand and the recovery in global economic activity," he said.

The financial year runs from July to June.

"Both headline and core inflation are pointing downwards for the month of April," Stephen Kaboyo, Managing Director at Alpha Capital Partners said before the announcement, adding that the bank would take comfort from that.

But he added: "Recent trends continue to suggest subdued private sector credit which poses downside risks to growth." (Reporting by Elias Biryabarema; Writing by Edmund Blair; Editing by James Macharia)

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