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REFILE-UPDATE 2-Uganda January inflation falls but no rate cut seen


(Refiles with core inflation target figure)

* Ugandan inflation falling from 18-year high reached in 2011

* cut key rate by 11 percentage points in 2012

* Analysts say to keep key rate unchanged next week

By Elias Biryabarema

KAMPALA, Jan 31 (Reuters) - Uganda's inflation edged down in January as food and transport prices fell but the modest decline and persistent core inflation meant policymakers meeting next week were seen as unlikely to cut interest rates.

The Uganda Bureau of Statistics (UBOS) said on Thursday that year-on-year inflation had eased to 4.9 percent in January from a revised 5.3 percent a month earlier.

The core rate of inflation - which excludes food crops, fuel, electricity and metered water, and is targeted by the central bank - rose to 5.6 percent from 4.6 percent in December.

Analysts said the small decline in prices was unlikely to prompt the central bank to resume monetary easing after leaving the policy rate unchanged at 12 percent this month, in part to support a weak currency.

Uganda's central bank held interest rates on Jan. 3, as it treads a path between managing inflation and supporting an economic upturn it said was likely to bring more cuts borrowing costs in the coming year.

The central bank, which lopped 11 percentage points from its benchmark Central Bank Rate (CBR) last year to boost sluggish economic growth, is due to announce its February interest rate decision on Monday.

"I think at 12 percent the monetary policy is well balanced between upward inflationary pressures and slow growth risks," said Alan Muhinda, trader at Stanbic Bank.

"I expect them to keep a neutral stance with the rate remaining unchanged for next month."

Muhinda said the central bank was probably inclined towards further policy easing, but that the rise in core inflation, indicating lingering price pressures in the real economy, would temper policymakers' bias. The central bank targets a rate of 5 percent for core inflation in the medium-term.

UBOS said month-on-month, January's inflation rate was 0.3 percent, the same as in December. The shilling did not react to the data, with commercial banks quoting the local currency at 2,660/2,670 at 1245 GMT, unchanged from Wednesday's close.

"Decreases in prices were recorded for matooke (plantains), sweet potatoes, pineapples and some fresh vegetables. This was mainly attributed to increased supplies to the market," the statistics bureau said.

"In the non-food category, the price index rose by 0.6 percent. This was driven by increases in prices of alcoholic beverages, rent, pharmaceutical products, petrol, diesel, kerosene, firewood and charcoal in some centres."

Price pressures in Africa's biggest coffee exporter jumped to an 18-year high in October 2011 when headline inflation hit 30.5 percent.

To roll it back, the Bank of Uganda raised its key lending rate in the second half of 2011 to a high of 23 percent, which with easing food costs helped prices decline steadily in 2012.

"Although prices have eased, the drop isn't that big, plus the risk of a weak currency remains elevated so my sense is we'll see CBR kept at its current level," said Ahmed Kalule, trader at Bank of Africa. (Editing by Drazen Jorgic and Catherine Evans)