INSTANT VIEW 3-Uganda cuts key lending rate

KAMPALA, Oct 2 (Reuters) - Uganda's central bank cut its key lending rate for the fifth straight month on Tuesday to 13.0 percent from 15.0 percent previously, but there were upside risks for inflation to rise due to domestic supply shocks, the bank's governor said.

Following are analyst reactions: ANGUS DOWNIE - HEAD OF ECONOMIC RESEARCH, ECOBANK

"The cut was very much expected as we've seen inflation slow considerably across east Africa.

"There are a couple of clouds on the horizon and the oil price is one of them. If you've got rising oil prices, given the huge level on imported crude in east Africa and especially Uganda, it will have a knock on effect on the Bank of Uganda rate decisions for the rest of the years.

"In Uganda there is also a pronounced weakening of the shilling and there is more nervousness in the local market about where the Ugandan shilling is going as the market expects more weakening to come."


"The reduction was in line with our forecast and we also see consumer price inflation, both headline and core, bottoming out within the next few months and then trending in the higher single digits next year.

"We thus believe that the Bank of Uganda is nearing the end of its monetary easing cycle and that further rate cuts will be dependent on to what extent economic growth recovers in FY2012/13 following a disappointing performance in FY2011/12."


"I think inflation will hold at these levels because it can't continue falling at the rate it has been coming down. I see the exchange rate maintaining current levels because expectations of a rate cut had already been captured.

"They (banks) have already factored it in to reflect the currency level, that is why we have been seeing quite some depreciation (shilling) in the last say seven days."


"The Bank of Uganda (BoU) cuts its policy rate by 200 bps to 13 percent largely as we had expected. With inflation for September having decelerated to single digits, and likely to head lower still in the near term, this was no surprise. While it may appear as though there is still substantial room for easing, going forward we expect perhaps a more moderate pace of easing at each meeting, especially if the frequency of MPC (Monetary Policy Committee) meetings (once a month) is maintained.

"There are a number of reasons for this view: First - our inflation forecasts. The BoU has already suggested that it sees pressure from global food prices early next year... Second, Uganda's current account deficit remains substantial, and given ongoing oil exploration activities, may even widen further with more capital goods imports."

(Reporting by Beatrice Gachenge and Drazen Jorgic; Editing by James Macharia)

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Keywords: UGANDA RATE/