The Central Bank of Uganda yesterday pegged lending rates at 11.5 percent, the lowest since 2011 when the apex bank tightened monetary policy to control skyrocketing inflation.

The move came in anticipation of a surge in inflation rates. Uganda’s annual core inflation rate dropped to 4.6% in January from 5.7% in December, according to data from the country’s bureau of statistics.

“Although core inflation has decelerated, helped by recent Ugandan shilling appreciation, food prices – which have risen strongly in recent months – are still a concern,” Standard Chartered economist Razia Khan said in a note.

The central bank’s deputy governor, Louis Kasekende fears that the conflict in South Sudan, which he blames for some of Uganda’s economic troubles, if sustained could plunge Uganda into further economic misfortune.

“The domestic economy faces a risk of an advance demand shock if the conflict in South Sudan is sustained,” Mr. Kasekende said.

“The dry spell experienced in parts of the East African region might impact on domestic food prices in the coming months. In addition, a reversal of the current exchange rate appreciation could also serve to strengthen inflationary pressures going forward.”

Ugandan exports to South Sudan reached $1.3 billion in 2012, overtaking tourism as the country’s leading source of foreign revenue, a report by The Wall Street Journal says.

The low lending rate is however unlikely to do much in improving Uganda’s economy as the Executive Director of Research Bank of Uganda, Dr Adam Mugume, noted that “credit growth is still low to support high economic growth”.