Uganda’s central bank on Tuesday cut the benchmark lending rate by one percentage point for the second month in a row, seeking to stimulate economic growth as inflation eases.

The Bank of Uganda (BOU) lowered the Central Bank Rate (CBR)to 19 per cent from 20 per cent, Deputy Governor Louis Kasekende said in Kampala on Tuesday.

The bank raised the rate by over 10 percentage points between July and December last year.

Uganda’s economic growth is projected to grow by five per cent this year compared to 6.7 per cent registered in the previous year.

Dr Kasekende said the country’s inflation will fall to a single digit by the end of 2012, followed by a further fall next year to the medium term target of five per cent. “In the next three months, we are likely to witness a more fall in annual inflation rates, because of the base effects arising from sharp increase in inflation in the corresponding period last year,” Dr Kasekende said.

He said the country’s persistent trade deficit is the main threat to further disinflation due to weaker exchange rates. However, the Uganda shilling appeared to have been unmoved by the new rate as commercial banks continued quoting it at 2,470/79 to the dollar before and after the central bank’s announcement.

Uganda’s headline inflation continued on the downward trend after it slowed from 18.6 per cent in May to 18 per cent in June aided by a reduction in food price index that fell by 3.4 per cent.

Dr Kasekende said the expected fall in inflation over the next six to12 months will allow the gradual reduction in policy interest rates to the borrowers in the form of lower lending rates.

The high consumer prices that surged last year across the east African region, driven mainly by high food and oil prices, triggered street protests in the country due to rising cost of living.