The Bank of Uganda has raised its benchmark interest rate by 225 basis points to 12 per cent, the sharpest single move since 2011, as a weaker shilling and dearer fuel threaten to push inflation above its target.
The Monetary Policy Committee decided at a special meeting on October 14 to lift the Central Bank Rate from 9.75 per cent. The new rate is the highest since early 2017 and the first change since October 2024, Uganda Business News reported. The rediscount rate is now 15 per cent and the bank rate 16 per cent.
Why the bank moved early
Headline inflation rose to 4.6 per cent in September from 4.1 per cent in August, driven by food crops and fuel. Core inflation climbed to 3.7 per cent from 3.5 per cent. Both remain below the five per cent medium-term core target for now, but the bank’s 12-month outlook has worsened: core inflation is projected at 5.5 to 6 per cent and headline at 7 to 7.5 per cent.
“The fuel shock seems persistent, and this, combined with exchange rate depreciation and effects of El Nino weather could cause inflation to be entrenched if monetary policy does not contain these price pressures now,” the bank said in its October statement.
The current account deficit has widened by $1.4 billion to $4.6 billion, according to the statement, as agricultural export prices and tourism receipts fell and freight costs rose. In the 12 months to August, the goods deficit reached $2.8 billion and the services deficit $3.3 billion. Capital outflows and higher rates in advanced economies have also limited inflows into Ugandan assets.
Credit and growth
Commercial banks are likely to pass on some of the rise into lending rates, though the gap between the policy rate and average shilling loan rates was already wide: in August the average lending rate was 17.9 per cent against a CBR of 9.75 per cent. That matters for firms financing stock and equipment, and for households on variable-rate loans.
The bank cut its FY2026/27 growth forecast to 6.0 to 6.5 per cent from 7.0 to 7.5 per cent, citing tighter finance, depreciation and energy costs. It had already raised the cash reserve requirement to 13.5 per cent from 11 per cent from September 24. On the day of the decision, the shilling strengthened from an opening mid-rate near Shs4,130 per dollar to a close of Shs3,951.05, Uganda Business News said, though one session does not settle the currency outlook.
For Kenyan firms trading with Uganda, dearer Ugandan credit and a still-fragile shilling can slow orders and stretch payment cycles across the shared border.
