The Bank of Uganda (BoU) has raised its benchmark interest rate from 9.75% to 12%, tightening monetary policy in response to rising inflation risks driven by higher fuel prices, a weakening shilling and external economic pressures.
The decision, announced by Bank of Uganda Governor Michael Atingi-Ego on Wednesday, October 14, 2026, followed a special meeting of the Monetary Policy Committee (MPC) and represents an increase of 2.25 percentage points.
The central bank said the adjustment was intended to contain inflationary pressures, limit the impact of exchange rate depreciation on domestic prices and safeguard price stability.
In its October Monetary Policy Statement, the bank warned that rising international oil prices and disruptions to global shipping routes, linked to escalating conflict in the Middle East, had increased transport, insurance and import costs.
These pressures, combined with the weakening shilling, could make imported goods more expensive and push up the cost of fuel, food and other essential commodities.
“The decision aims to contain rising inflation risks driven by higher fuel prices and exchange rate pressures, while safeguarding price stability,” the central bank said.
The rate increase comes as inflation begins to rise, with annual headline inflation climbing to 4.6% in September from 4.1% in August. Core inflation, which provides a measure of underlying price movements, also rose to 3.7% from 3.5% over the same period.
Although inflation remains below the central bank’s medium-term target of 5% for core inflation, BoU is concerned that sustained increases in fuel and import costs could accelerate price increases across the economy.
The bank now expects headline inflation to average between 7% and 7.5% over the next 12 months, while core inflation is projected to average between 5.5% and 6%.
The latest decision is also expected to influence borrowing costs across the financial sector. The Central Bank Rate guides interest rates in the economy, meaning commercial banks could raise lending rates in response to tighter monetary conditions.
Higher borrowing costs could increase the cost of credit for businesses and households, potentially slowing borrowing, investment and consumer spending. The measure is intended to ease demand pressures and prevent temporary cost increases from developing into sustained inflation.
Alongside the benchmark rate increase, BoU has raised the Cash Reserve Requirement (CRR) for commercial banks from 11% to 13.5%, a measure intended to absorb excess liquidity and strengthen the transmission of monetary policy.
The central bank said the reserve requirement adjustment took effect on September 24, 2026.
Under the requirement, commercial banks must retain a prescribed proportion of eligible deposits as reserves rather than deploy the entire amount for lending. Raising the ratio reduces the funds available for credit creation and helps the central bank manage liquidity in the financial system.
The bank has also revised its economic growth outlook for the 2026/27 financial year, lowering its projection from between 7% and 7.5% to between 6% and 6.5%.
The downgrade reflects higher global energy prices, exchange rate pressures, tighter financial conditions and uncertainty arising from international conflicts. Economic growth was estimated at 6.4% in the quarter ending September 2026, down from 6.8% in the quarter ending June.
Uganda’s external position has also come under pressure, with the current account deficit widening by US$1.4 billion to US$4.6 billion. The deterioration has been attributed to factors including higher import-related costs, increased freight charges, lower earnings from some agricultural exports and reduced tourism receipts.
Despite the near-term challenges, the central bank expects economic growth to strengthen over the medium term, supported by private investment, exports, anticipated developments in the oil sector and the government’s Tenfold Growth Strategy.
BoU said it would continue monitoring inflation, exchange rate movements and international economic developments, with further policy action possible if price pressures persist.
