Uganda's central bank, Bank of Uganda (BoU) on Tuesday said that the country's high inflation has peaked and there are clear indications that it is set to fall to single digits this year.

In December 2011, the country's annual headline inflation fell to 27 percent from the previous month's 29 percent and October's 30.5 percent.

Tumusiime Mutebile, Governor BoU told reporters here that the decline in inflationary pressures is due to the bank's tight monetary policy.

"The peaking of inflation and the recent strengthening of the shillings shows that monetary policy is quite effective and that BoU must maintain a tight stance in order to bring down inflation and stabilize it around its medium term target of five percent," he said.

The central bank increased its leading rate of 21.7 percent in July 2011 to 25.4 percent in November 2011 in order to curb the skyrocketing inflation.

Following the slight decline in inflation in November and December the bank maintained its lending rate to commercial banks at 23 percent for this month just as in December.

Mutebile said that the decline in inflation is expected to be gradual especially for non food items whose prices are still high.

He said a fall in the global inflation during 2012 would result in the decline in commodity prices which would support the bank's anti-inflationary monetary policy.

He warned that the country's weak balance of payments and the associated exchange rate depreciation pressures remain a major upside risk to inflation.

The continued turbulence and vulnerability of the global financial markets is also likely to lead to depreciation pressures as offshore investors in government securities exit the market.

"Although inflation has reduced, the challenge of bringing down inflation to an acceptable level on a sustainable basis remains significant," he said.

Due to the high inflation, there were a series of violent demonstration in Uganda last year as police and rioters were engaged in running battles.