Bank of Uganda Raises Central Bank Rate to 12% in Emergency Move to Stem Shilling Slide and Rising Inflation

KAMPALA, October 14, 2026 — The Bank of Uganda (BoU) has sharply raised its Central Bank Rate (CBR) by 225 basis points to 12 percent from 9.75 percent following a special Monetary Policy Committee (MPC) meeting held today. The decision, the largest single hike in years and one that lifts borrowing costs to their highest level since 2017, aims to contain inflationary pressures from a rapidly weakening shilling and elevated global energy prices.

Governor Michael Atingi-Ego and the MPC cited a significant deterioration in the global economic environment since the August meeting, driven largely by the escalation of conflict in the Middle East. These developments have widened Uganda’s current account deficit, intensified exchange rate volatility, and increased the risk that depreciation will feed into domestic prices. Headline inflation rose to 4.6 percent in September from 4.1 percent in August, while core inflation edged up to 3.7 percent. The bank now projects core inflation averaging 5.5–6.0 percent and headline inflation 7.0–7.5 percent over the next 12 months if pressures persist.

The Uganda shilling has lost roughly 12 percent against the US dollar so far this year, repeatedly testing and breaking through the 4,000 mark and hitting multi-decade lows. Strong demand for hard currency from oil importers facing elevated global fuel prices, combined with offshore investors exiting local-currency government bonds, has driven the depreciation. Capital outflows have exceeded $200 million in recent weeks according to market estimates. President Yoweri Museveni has publicly opposed the use of foreign exchange reserves to defend the currency, arguing that a weaker shilling benefits exporters and that reserves should not be “squandered.”

This rate hike follows an earlier tightening of liquidity conditions. In late September, BoU raised the Cash Reserve Requirement (CRR) for commercial banks from 11 percent to 13.5 percent, effective September 24, to absorb excess liquidity and improve monetary policy transmission without drawing down reserves. The rediscount rate now stands at 15 percent and the bank rate at 16 percent.

The move is expected to push commercial bank lending rates higher from their already elevated levels of roughly 17–19 percent. Treasury bond yields are also likely to rise, increasing the cost of government borrowing. While the tighter stance should help support the shilling, limit second-round inflation effects from higher fuel and import prices, and anchor inflation expectations around the medium-term target of 5 percent, it risks slowing private sector credit growth and investment at a time when the economy is navigating external shocks.

Businesses, particularly importers and small-to-medium enterprises that rely on bank financing, face higher operating costs. Households will feel the pressure through more expensive loans and potentially sustained high fuel and transport prices. On the positive side, exporters and those with dollar earnings may benefit from the weaker currency, while higher interest rates could attract portfolio inflows once market confidence stabilises.

BoU has signalled that it will continue monitoring domestic and global developments closely and stands ready to take further measures if needed to preserve price and financial stability. Markets will now watch the immediate reaction of the shilling, interbank rates, and bond yields, as well as any response from commercial banks on lending rates in the coming days. The emergency action underscores the central bank’s determination to prioritise price stability amid external pressures that have proved more persistent than earlier anticipated.

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