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Uganda's central bank cut its benchmark Central Bank Rate (CBR) by another 100 basis points as inflation is expected to fall faster than it expected in June as the stability of the exchange rate of the shilling has improved the near-term outlook for inflation.

  

The Bank of Uganda (BOU), which has now cut its rate by 300 basis points this year, said annual and core inflation is now forecast to decline to the target of 5 percent by the end of this year, earlier than expected in June when inflation was seen converging to its target by early 2017.

  

Uganda's headline inflation rate eased to 5.1 percent in July from 5.9 percent in June while core inflation declined to 5.9 percent from 6.8 percent.

  

"The stability of the exchange rate, lower fuel and subdued domestic demand have contributed to the gradual dampening of inflation pressures over the last seven months," the BOU said, adding lower interest rates should help support a recovery of private sector credit and thus economic growth.

After depreciating in 2014 and 2015, the shilling has been stable this year and was trading around 3,380 to the U.S. dollar today, down only 0.2 percent this year.

  

Although Uganda's economy contracted by an annual rate of 1.3 percent in the first quarter of calendar 2016 - or the third quarter of financial year 2015/16 - the central bank said measures of economic activity for July indicate a recovery in the fourth quarter of the current financial year.

  

The economy is forecast to expand by about 5.5 percent in the current 2016/17 financial year, which began on July 1, up from an estimated 4.6 percent for 2015/16, the BOU said, adding a recovery in private sector credit growth and higher public infrastructure spending were expected to support growth while higher uncertainty about the global economy could constrain exports.

  

Uganda is Africa's largest coffee producer.

 

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