The Bank of Uganda (BoU) has tightened monetary policy to contain rising inflation risks, saying timely intervention is necessary to protect the purchasing power of households and businesses amid higher global fuel prices and pressure on the Ugandan shilling.
The central bank raised the Central Bank Rate (CBR) from 9.75% to 12% following a special Monetary Policy Committee meeting in October 2026, seeking to prevent rising import costs from triggering broader and more persistent increases in domestic prices.
In its October Monetary Policy Statement frequently asked questions released on Monday, BoU said inflationary risks had increased significantly since its August meeting, prompting the committee to reassess the economic outlook before its next scheduled meeting.
The intervention comes as Uganda faces higher international oil and shipping costs, reduced foreign currency earnings from some agricultural exports and tourism, and increased pressure on the shilling.
BoU said the policy adjustment is intended to keep core inflation as close as possible to its medium-term target of 5%, helping preserve the value of money and support economic stability.
Inflation pressures prompt action
Uganda’s headline inflation rose to 4.6% in September from 4.1% in August, driven by higher food crop and fuel prices, including the effects of the weaker shilling.
Core inflation, which excludes food crop prices, energy-related items and administered prices, increased to 3.7% from 3.5% over the same period.
The central bank has revised its inflation outlook upwards, projecting average core inflation of between 5.5% and 6% and headline inflation of between 7% and 7.5% over the next 12 months.
BoU attributed the revised projections mainly to higher international energy prices, exchange-rate depreciation and rising domestic food prices.
Despite the pressures, the central bank said the outlook could improve if favourable weather boosts food production, international commodity prices fall more sharply than expected or global demand weakens.
However, it warned that risks remained tilted towards higher inflation, particularly if global conflicts intensify, the shilling weakens further or unfavourable weather reduces food supplies.
Higher reserves requirement reinforces policy
The October rate increase followed an earlier adjustment to the Cash Reserve Requirement (CRR), which BoU raised from 11% to 13.5%, effective September 24, 2026.
The CRR is the proportion of commercial banks’ deposits they must hold as reserves with the central bank rather than use for lending.
BoU said the increase was intended to reduce excess money in the banking system and strengthen the effectiveness of monetary policy in containing inflation.
Together, the adjustments are designed to moderate financial conditions and limit the extent to which higher import costs feed into prices across the economy.
Economy remains on growth path
Although the inflation outlook has weakened, BoU said Uganda’s economy continues to expand, with growth for the quarter ending September 2026 projected at 6.4%, compared with the 6.8% reported by the Uganda Bureau of Statistics for the quarter ending June.
The central bank projects economic growth of between 6% and 6.5% in the 2026/27 financial year, down from its earlier forecast of 7% to 7.5%.
It expects growth to strengthen to about 8% over the medium term, supported by private investment, exports, oil-sector developments and the Government’s Tenfold Growth Strategy.
Private-sector activity continues to expand, although business and consumer confidence have softened, according to the statement.
BoU said growth could be constrained by persistently high energy and transport costs, global trade disruptions, adverse weather and tighter financing conditions. Stronger private investment, improved agricultural production and easing global tensions could support a better outcome.
Borrowers and savers face different effects
The higher policy rate is expected to influence lending and savings rates as commercial banks adjust their pricing.
Borrowers and businesses could face higher financing costs over time, potentially affecting household spending, investment and working capital. Savers, meanwhile, may benefit from improved returns on some interest-bearing deposits and savings products.
BoU said the broader objective is to prevent higher fuel prices and a weaker shilling from translating into widespread and sustained increases in the cost of goods and services.
The bank said it would continue monitoring inflation, exchange-rate movements, food prices and international energy costs, and remained ready to take further measures if necessary to preserve price and financial stability.