The Bank of Uganda’s emergency decision to raise interest rates to 12% reflects growing concern over currency depreciation and inflation. But lasting stability will depend on addressing the economic pressures behind the shilling’s decline.
Uganda’s central bank has taken decisive action to defend the country’s currency, raising its benchmark interest rate from 9.75% to 12% on October 14, 2026. The emergency increase came as the Ugandan shilling fell to record lows against the US dollar, intensifying concerns about imported inflation and the country’s economic outlook.
The move highlights a difficult policy dilemma: how can Uganda stabilise its currency and contain rising prices without making borrowing more expensive for businesses and households?
The shilling had lost approximately 12% of its value against the dollar since the beginning of 2026. Meanwhile, annual headline inflation rose from 4.1% in August to 4.6% in September. The Bank of Uganda also lowered its growth forecast for the 2026/27 financial year to 6–6.5%, down from an earlier projection of 7–7.5%.
These developments illustrate the pressure facing policymakers as external shocks begin to influence domestic prices, financial conditions and growth expectations.
Currency depreciation can make a country’s exports more competitive, but it also increases the local cost of imported goods. For Uganda, where businesses depend on imported fuel, machinery and other production inputs, a weaker shilling can quickly translate into higher operating costs.
Rising fuel prices are particularly consequential because they affect transportation, manufacturing, agriculture and distribution. Businesses facing higher costs may pass them on to consumers, reducing household purchasing power.
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