The Bank of Uganda has raised its Central Bank Rate (CBR) from 9.75% to 12%, a 2.25 percentage-point increase, as rising global oil prices and pressure on the shilling threaten to push inflation higher.
The decision was announced on October 14 following a special meeting of the Monetary Policy Committee chaired by Governor Michael Atingi-Ego.
The rate hike comes at a time when escalating conflict in the Middle East has disrupted shipping routes and energy supplies, pushing up international oil prices, freight charges and insurance costs. These increases are raising the cost of imports and adding pressure on domestic prices.
Headline inflation rose to 4.6% in September, up from 4.1% in August, driven largely by higher fuel and food crop prices. Core inflation, which excludes some volatile price items, also increased to 3.7% from 3.5% in August. The central bank now expects headline inflation to rise to between 7% and 7.5% over the next 12 months. Core inflation is projected to average between 5.5% and 6%, above the Bank of Uganda’s medium-term target of 5%.
The higher interest rate is intended to contain these pressures before they become more entrenched in the economy.
Shilling under pressure as trade deficit widens
Uganda’s external position has weakened, adding to pressure on the shilling. The current account deficit widened by US$1.4 billion to US$4.6 billion, reflecting lower export earnings from some agricultural commodities, reduced tourism receipts and a rising import bill.
The goods trade deficit grew to US$2.8 billion in the 12 months to August 2026, up from US$2.4 billion in the same period a year earlier. The services trade deficit also widened, from US$2.2 billion to US$3.3 billion. Diaspora remittances provided some relief, with secondary income rising to US$3.1 billion. However, capital outflows increased as investors sought better returns in advanced economies, putting further pressure on the local currency.
A weaker shilling makes imported fuel, machinery and raw materials more expensive. Businesses may pass some of these costs on to consumers, pushing up prices across the economy.
Growth forecast lowered
The rate increase comes as economic growth shows signs of slowing. Uganda’s real GDP growth eased to 6.4% in the quarter ended September 2026, from 6.8% in the quarter ended June.
The Bank of Uganda has lowered its growth forecast for the 2026/27 financial year to between 6% and 6.5%, from the earlier projection of 7% to 7.5%. The central bank expects growth to strengthen over the medium term, potentially averaging 8%, supported by private investment, stronger exports, oil sector developments and the government’s Tenfold Growth Strategy.
However, higher interest rates could make loans more expensive for businesses and households. This may slow borrowing, investment and consumer spending, at least in the short term.
Banks face tighter liquidity conditions
The latest increase follows the Bank of Uganda’s decision on September 24 to raise the Cash Reserve Requirement for commercial banks from 11% to 13.5%, requiring lenders to hold a larger share of their deposits as reserves.
The rediscount rate has also been raised to 15%, while the bank rate has increased to 16%. The measures are aimed at tightening liquidity in the financial system and reinforcing the fight against inflation.
The central bank has signalled that it could take further action if global energy prices, exchange rate movements or adverse weather conditions linked to El Niño push inflation higher. For businesses, the combination of higher borrowing costs, expensive imports and a weaker shilling could put pressure on margins. Households could also face a higher cost of living if fuel and food prices continue to rise.
The coming months will test how quickly monetary tightening can contain inflation without placing additional pressure on economic growth.
