The Bank of Uganda dramatically raised its benchmark interest rate by 225 basis points to 12% during an emergency meeting, pushing borrowing costs to their highest level since 2017.
According to official central bank statements released on Thursday the aggressive monetary tightening aims to curb the Ugandan shilling’s sharp depreciation against major global currencies.
The local currency has tumbled roughly 12% this year, battered by heavy foreign exchange demand from energy importers and offshore investors offloading domestic government bonds.
Headline inflation has climbed steadily for six consecutive months, reaching 4.6% in September, while forward-looking core forecasts threaten to breach the bank’s 5% medium-term target.
Alongside the central bank rate hike, policymakers aggressively lifted the rediscount rate to 15% and the bank rate to 16% to tighten broader financial liquidity.
Commercial lending rates are expected to surge immediately, significantly increasing debt-servicing burdens for businesses and potentially slowing Uganda’s near-term economic growth.
