(Updates with governor’s comments in fourth paragraph.)
July 6 (Bloomberg) -- Uganda’s central bank set its new benchmark interest rate at 13 percent as a first step towards implementing an inflation-targeting policy.
The Bank of Uganda will aim to bring the core inflation rate to 5 percent “over the medium term,” Governor Emmanuel Tumusiime-Mutebile told reporters in the capital, Kampala, today. The key interest rate will be set monthly to help guide commercial bank lending rates, he said.
Core inflation, which excludes food, energy and water costs, accelerated to an annual 12.2 percent in June from 11.3 percent in May, according to the statistics office. The headline inflation rate in Uganda, Africa’s second-largest coffee producer, rocketed to a 17-year high of 16 percent in May, fueling protests by residents over rising food and energy costs.
“The Central Bank Rate will be set at a level that is consistent with moving core inflation towards the Bank of Uganda’s policy target of 5 percent over the medium term,” Tumusiime-Mutebile said. The rate “will be used to guide the seven-day interbank interest rate.”
Previously, the bank had targeted money supply growth in order to curb inflation.
The core inflation rate will probably drop to between 10 percent and 12 percent in the third quarter, while headline inflation is expected to ease to between 12 percent and 14 percent in the same period, Adam Mugume, a director of research at the central bank, said at the press conference today.
Uganda is scheduled to become an oil producer next year when Tullow Oil Plc starts pumping crude and gas from the Lake Albert Basin. The East African nation has a population of 31.7 million and an economy of $16 billion, according to the World Bank.
--Editors: Nasreen Seria, Philip Sanders
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