The Bank of Uganda raised its benchmark interest rate by 225 basis points to 12% at an emergency meeting on October 14, according to IntelliNews, as the shilling slid to a series of record lows against the dollar.
The Monetary Policy Committee lifted the Central Bank Rate from 9.75%, the level it had held since October 2024. The decision came after the currency broke through UGX4,000 to the dollar on October 5 and kept falling. Central bank data cited in the reporting put the shilling's opening level at UGX4,152.86 against the dollar on October 13.
The shilling gained more than 2% following the announcement, according to LSEG data cited by Reuters.
Why it matters
Uganda's currency has weakened by roughly 12% against the dollar since the start of 2026, and the slide has pushed up the cost of imported goods, fuel in particular. The central bank now expects headline inflation of 7% to 7.5% over the next 12 months, with core inflation running at 5.5% to 6% — above its medium-term core target of 5%.
Governor Michael Atingi-Ego said the depreciation and a worsening external position risked feeding inflation more broadly, which is why the bank moved to a tighter stance. The emergency meeting itself signals how quickly policymakers felt the pressure had built.
The rate increase also follows a separate tightening step: the bank raised commercial banks' cash reserve requirement from 11% to 13.5%, effective September 24, as authorities tried to drain liquidity and relieve pressure on prices and the currency.
Inflation is already building
The latest official figures show price pressures moving in the wrong direction. Annual headline inflation rose to 4.6% in September from 4.1% in August, according to the Uganda Bureau of Statistics. Food crop and related items inflation more than doubled, to 4.5% from 2.1%, while core inflation edged up to 3.7% from 3.5%.
The central bank pointed to several forces behind the currency's decline: rising global oil prices, heavier demand for foreign currency from fuel importers, and offshore investors pulling money out of government bonds. Traders and market analysts have given similar explanations, according to the reporting.
Citigroup estimated that about $200mn left Uganda's financial markets over a two-week period, according to Uganda Business News on October 13.
Stephen Kaboyo, managing director of Alpha Capital Partners, told Reuters on October 8 that he expected fresh pressure on the shilling as businesses built up dollar holdings ahead of peak year-end import demand, made worse by high energy prices.
A political split over reserves
The tightening comes days after President Yoweri Museveni said he had blocked a central bank proposal to sell dollars from the reserves to prop up the shilling. Museveni argued that a weaker currency helps exporters, according to the Daily Monitor.
"I am totally against the Governor Bank of Uganda's proposal to squander our reserves," Museveni said, according to that report.
The Bank of Uganda has said it does not target any particular exchange rate, though it reserves the right to step in to smooth out excessive volatility in the market.
Reserve levels give some context to the debate. Uganda's foreign exchange reserves rose 56% to $6.7bn at the end of June 2026, up from $4.3bn a year earlier, Reuters reported on October 13, citing central bank figures. That stock covered 3.7 months of imports, short of the bank's four-month target. More recent data put reserves at $6.52bn at the end of August, equal to 3.6 months of imports when oil-project goods are excluded, according to Uganda Business News.
Growth forecast cut
Alongside the rate decision, the central bank lowered its growth projection for the 2026/27 financial year to 6%–6.5%, down from an earlier estimate of 7%–7.5%. It cited higher energy costs, tighter financial conditions and uncertainty in international markets.
The combination of a weaker currency, costlier fuel and reduced donor funding has drawn attention from analysts. Experts have linked the shilling's fall to the Ebola outbreak and lower donor inflows, according to the Daily Monitor. Business Insider Africa reported that the currency had reached its lowest level in 33 years as investors sought better returns in dollar assets.
IntelliNews reported the emergency meeting was called for Wednesday after the currency's decline accelerated.
What to watch next: whether the shilling holds its post-decision gain, and whether the central bank's tighter stance is enough to keep inflation from overshooting its revised forecasts.
