Bank of Uganda (BoU) on Tuesday left its benchmark rate unchanged at 11 per cent on the back of expectations of an increase in the inflation rate in the next two to three months.

The banking regulator said that it would keep the Central Bank Rate (CBR) at the current rate after reducing it by one percentage point last month from 12 per cent, a level it has been since the beginning of December last year.

Emmanuel Tumusiime-Mutebile, governor BoU in a statement said that even though there are expectations that prices of basic goods and services could rise at a faster pace in the coming months, the rate will then drop towards the regulators medium term policy target of 5 per cent by June next year.

He said that although the indirect tax increases announced in the 2013/14 budget are expected to have one-off impact on prices, the overall impact on the consumer price index will be small, probably less than 0.5 per cent.

“However, the adverse weather conditions being experienced in most parts of the country could push prices in the near-term and this poses an upward risk to the inflation forecast,” said Prof. Tumusiime-Mutebile.

The inflation rate - which is the pace at which prices of basic goods and services rise - has in Uganda been falling consistently since October 2011 when it peaked at 30.5 per cent to a low of 3.4 per cent in April then rose slightly to 3.6 per cent in May and fell again to 3.4 per cent last month.

Prof. Tumusiime-Mutebile said that since June’s monetary policy statement, the macroeconomic outlook for the next 12 months remains unchanged with the exception that the balance of risks to the inflation forecast have shifted slightly upward, mainly due to the threat posed to food prices by drought.