The Bank of Uganda has raised its Central Bank Rate (CBR) from 9.75 per cent to 12 per cent in response to a weakening shilling, rising fuel prices and growing concerns over inflation.
The Monetary Policy Committee announced the 225-basis-point increase following a special meeting on October 14, 2026, as the central bank moved to contain mounting economic pressures.
Bank of Uganda Governor Michael Atingi-Ego attributed the decision to deteriorating global conditions, particularly the escalating conflict in the Middle East, which has intensified pressure on Uganda’s exchange rate and import costs.
The Central Bank Rate influences interest rates across the financial system. The increase could translate into more expensive commercial bank loans as the central bank seeks to curb excessive spending and prevent further inflationary pressures.
Shilling Depreciation Raises Economic Concerns
The decision comes as the Ugandan shilling faces renewed pressure against the US dollar.
The currency opened at Shs4,152.86 against the dollar on October 13, according to central bank data reported by Uganda Business News. Bloomberg had valued it at Shs4,143 the previous day, marking its weakest level since at least 1993.
Citigroup estimated that approximately $200 million had flowed out of Uganda’s markets within two weeks as foreign investors reduced their exposure to local assets.
Atingi-Ego explained that higher interest rates in international markets had made foreign investments more attractive, limiting capital inflows into Uganda.
The weakening shilling, coupled with elevated international oil prices, has pushed up domestic fuel costs, increasing the risk of further price increases across the economy.
Inflation Expected to Rise Further
Uganda’s headline inflation increased to 4.6 per cent in September, up from 4.1 per cent in August, largely driven by food and fuel prices.
Core inflation, which excludes volatile items such as food crops and fuel, also rose from 3.5 per cent to 3.7 per cent.
Although core inflation remains below the central bank’s five per cent target, officials expect inflationary pressures to intensify over the coming months.
The Bank of Uganda now projects headline inflation to average between seven and 7.5 per cent over the next 12 months, while core inflation could average between 5.5 and six per cent.
The governor said the rate increase was intended to prevent higher fuel costs and currency depreciation from translating into broader and more persistent price increases.
External Deficit Widens
Uganda’s external position has also deteriorated, with the current account deficit widening by $1.4 billion to $4.6 billion.
The development reflects declining agricultural commodity prices, reduced tourism receipts and higher international transportation costs.
In the year to August 2026, the goods deficit expanded to $2.8 billion from $2.4 billion recorded during the corresponding period a year earlier.
Meanwhile, the services deficit widened to $3.3 billion from $2.2 billion, largely due to increased freight charges. Higher remittance inflows offered some relief.
Fuel Prices Squeeze Households
The economic pressures have also raised concerns among legislators.
On October 6, Members of Parliament warned that the rising cost of the US dollar was increasing import expenses, while fuel prices ranging between Shs6,800 and Shs7,000 per litre were putting additional pressure on household budgets.
Higher fuel prices can increase transportation and production costs, potentially pushing up the prices of essential goods and services.
The central bank has consequently revised its economic growth forecast for the 2026/27 financial year downward to between six and 6.5 per cent, from an earlier projection of seven to 7.5 per cent.
It cited tighter financial conditions, currency depreciation and rising energy costs as key risks to economic expansion.
More Monetary Tightening Measures
The latest rate increase follows an earlier decision requiring commercial banks to hold 13.5 per cent of their deposits as reserves, up from 11 per cent. The revised requirement took effect on September 24, 2026.
The rediscount rate now stands at 15 per cent, while the bank rate has risen to 16 per cent.
The governor said the central bank remained prepared to take additional measures to safeguard price and financial stability.
The latest decision signals growing concern within the central bank over the combined effects of currency depreciation, global oil market volatility and rising inflation expectations.
For households and businesses, the immediate concern will be whether the tighter monetary policy can stabilise the shilling and contain rising prices without placing additional pressure on borrowing, investment and economic growth.
