Key Takeaways
- • The Bank of Uganda raised its benchmark rate by 2.25 percentage points to 12 per cent at a special Monetary Policy Committee meeting, the first change since October 2024 and the largest increase since 2011.
- • The shilling was quoted at Shs4,075.48 to the dollar at midday, 11.2 per cent weaker than at the end of 2025, as offshore investors trimmed holdings of Ugandan bonds.
- • Headline inflation rose to 4.6 per cent in September, while the bank now forecasts core inflation of 5.5 to 6 per cent over the next 12 months and headline inflation of 7 to 7.5 per cent.
- • The central bank raised the cash reserve requirement to 13.5 per cent from 11 per cent effective 24 September, and lifted the rediscount and bank rates to 15 and 16 per cent.
- • The bank cut its 2026/27 growth forecast to 6 to 6.5 per cent from 7 to 7.5 per cent, citing tighter financial conditions, depreciation and higher energy prices.
Summary
The Bank of Uganda raised its benchmark interest rate by 2.25 percentage points to 12 per cent at a special meeting on Wednesday, according to the article's account of the decision. The move followed a weaker shilling and higher oil prices, which pushed up the bank's inflation forecasts. It is the first change since October 2024 and the largest increase since 2011, leaving the rate at its highest level since early 2017. The Monetary Policy Committee had held the rate at 9.75 per cent in August, when it said it needed clarity on the inflation outlook. BMI, part of Fitch Group, had forecast in September a quarter-point rise to 10 per cent at the committee's scheduled 12 November meeting.
In a statement signed by Governor Michael Atingi-Ego, the bank said the Middle East conflict had escalated since August, weakening the external position and increasing exchange rate volatility. Rising interest rates in advanced economies and global risk aversion made foreign investments more attractive than Ugandan assets, limiting inflows. The shilling was quoted at Shs4,075.48 to the dollar at midday after opening at Shs4,130.24, per the central bank's rate card. Bloomberg reported that offshore investors trimmed holdings of Ugandan bonds. The depreciation and higher oil prices have raised pump prices.
The current account deficit widened by $1.4bn to $4.6bn (Shs18.7tn) in the 12 months to August, as lower coffee and cocoa prices, weaker tourism receipts and higher freight costs outweighed higher remittances. Headline inflation rose to 4.6 per cent in September from 4.1 per cent in August, its highest since June 2023. Core inflation reached 3.7 per cent from 3 per cent in May, which the bank said showed cost pressures spreading more broadly. The bank targets core inflation of 5 per cent over the medium term, but now forecasts core inflation averaging 5.5 to 6 per cent over the next 12 months, up from 4 to 4.5 per cent in August, with headline inflation at 7 to 7.5 per cent.
Commercial banks have been required to hold 13.5 per cent of deposits at the central bank since 24 September, up from 11 per cent and the second increase this year. The rediscount rate and bank rate, set 3 and 4 percentage points above the policy rate, rise to 15 and 16 per cent. The bank cut its growth forecast for the year to June 2027 to 6 to 6.5 per cent from 7 to 7.5 per cent, attributing this to tighter financial conditions, depreciation and higher energy prices, and expects growth of about 8 per cent over the medium term. The World Bank separately cut its forecast for the same year to 7.4 per cent from 8.5 per cent.
The statement did not mention foreign-exchange intervention. The bank has said it does not plan direct dollar sales, and President Yoweri Museveni said on 9 October that he did not agree with selling reserves to support the shilling. Policymakers said they would keep assessing domestic and global developments and were ready to take additional measures.
In a statement signed by Governor Michael Atingi-Ego, the bank said the Middle East conflict had escalated since August, weakening the external position and increasing exchange rate volatility. Rising interest rates in advanced economies and global risk aversion made foreign investments more attractive than Ugandan assets, limiting inflows. The shilling was quoted at Shs4,075.48 to the dollar at midday after opening at Shs4,130.24, per the central bank's rate card. Bloomberg reported that offshore investors trimmed holdings of Ugandan bonds. The depreciation and higher oil prices have raised pump prices.
The current account deficit widened by $1.4bn to $4.6bn (Shs18.7tn) in the 12 months to August, as lower coffee and cocoa prices, weaker tourism receipts and higher freight costs outweighed higher remittances. Headline inflation rose to 4.6 per cent in September from 4.1 per cent in August, its highest since June 2023. Core inflation reached 3.7 per cent from 3 per cent in May, which the bank said showed cost pressures spreading more broadly. The bank targets core inflation of 5 per cent over the medium term, but now forecasts core inflation averaging 5.5 to 6 per cent over the next 12 months, up from 4 to 4.5 per cent in August, with headline inflation at 7 to 7.5 per cent.
Commercial banks have been required to hold 13.5 per cent of deposits at the central bank since 24 September, up from 11 per cent and the second increase this year. The rediscount rate and bank rate, set 3 and 4 percentage points above the policy rate, rise to 15 and 16 per cent. The bank cut its growth forecast for the year to June 2027 to 6 to 6.5 per cent from 7 to 7.5 per cent, attributing this to tighter financial conditions, depreciation and higher energy prices, and expects growth of about 8 per cent over the medium term. The World Bank separately cut its forecast for the same year to 7.4 per cent from 8.5 per cent.
The statement did not mention foreign-exchange intervention. The bank has said it does not plan direct dollar sales, and President Yoweri Museveni said on 9 October that he did not agree with selling reserves to support the shilling. Policymakers said they would keep assessing domestic and global developments and were ready to take additional measures.
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