Bank of Uganda announces highest lending rate in 10 years as Shilling slump fuels inflation fears

The Bank of Uganda has raised its Central Bank Rate (CBR) from 9.75 per cent to 12 per cent as a weakening shilling and rising fuel prices threaten to drive inflation higher.

The Monetary Policy Committee announced the increase after a special meeting on October 14, 2026. The adjustment amounts to 225 basis points, or 2.25 percentage points.

Governor Michael Atingi-Ego said worsening global conditions, particularly the escalating Middle East conflict, had increased pressure on Uganda’s exchange rate and import costs.

The CBR guides interest rates across the financial system. The increase could make commercial bank loans more expensive as the central bank seeks to restrain spending and contain price increases. 

The last upward adjustment that took the CBR to exactly 12 per cent occurred on April 8, 2015, when the bank raised it from 11 per cent amid concerns about inflation and shilling depreciation. The rate subsequently climbed further. It returned to 12 per cent on December 14, 2016, through a reduction from 13 per cent. 

The latest decision comes amid a sharp currency decline. The shilling opened at Shs4,152.86 against the dollar on October 13, 2026, according to central bank data reported by Uganda Business News.

Bloomberg had placed it at Shs4,143 the previous day, its weakest level since at least 1993. Citigroup estimated that about $200 million had left Uganda’s markets within two weeks as foreign investors reduced their exposure to local assets. 

Atingi-Ego said higher interest rates abroad had made foreign investments more attractive, limiting capital inflows into Uganda. The weaker shilling, combined with elevated international oil prices, has increased domestic fuel costs.

Headline inflation rose to 4.6 per cent in September from 4.1 per cent in August, driven by food and fuel prices. Core inflation, which excludes volatile items such as food crops and fuel, increased to 3.7 per cent from 3.5 per cent.

Although core inflation remains below the bank’s five per cent target, officials expect price pressures to intensify. Headline inflation is now forecast to average between seven and 7.5 per cent over the next 12 months. Core inflation could average between 5.5 and six per cent.

The governor said the higher rate would prevent fuel costs and currency depreciation from triggering broader, persistent price increases.

Uganda’s external finances have also weakened. The current account deficit widened by $1.4 billion to $4.6 billion, reflecting lower agricultural commodity prices, reduced tourism receipts and higher international transport costs.

In the year to August 2026, the goods deficit increased to $2.8 billion from $2.4 billion a year earlier. The services deficit widened to $3.3 billion from $2.2 billion, largely because of freight charges. Higher remittances provided some relief.

The currency and fuel pressures have already drawn concern in Parliament. On October 6, MPs warned that expensive dollars were increasing import costs, while pump prices of between Shs6,800 and Shs7,000 a litre were squeezing household budgets.

The central bank has also lowered its economic growth forecast for the 2026/27 financial year to between six and 6.5 per cent, from seven to 7.5 per cent. It cited tighter financial conditions, currency depreciation and higher energy costs.

The rate increase follows an earlier decision requiring commercial banks to hold 13.5 per cent of deposits as reserves, up from 11 per cent, effective September 24, 2026.

The rediscount rate now stands at 15 per cent and the bank rate at 16 per cent. Atingi-Ego said the central bank stood ready to take further action to preserve price and financial stability.