Uganda’s economy faces a squeeze from higher rates and rising costs

What the report says

Uganda’s central bank has tightened monetary policy and lowered its growth outlook as the economy comes under pressure from a weaker shilling, higher fuel prices and rising borrowing costs. In the report published by The Independent Uganda, the Bank of Uganda lifted its benchmark Central Bank Rate to 12%, the first increase in two years, while also trimming its forecast for 2026/27 growth to 6%–6.5% from an earlier 7%–7.5% range.

The publisher said the rate decision was aimed at containing inflationary pressure from imported fuel and energy costs, as well as the effects of currency depreciation. Annual inflation had already risen in September, and the central bank warned that headline inflation could move higher over the coming year. The shilling has weakened significantly against the US dollar, making imports, foreign payments and transport more expensive for businesses and households.

The article described knock-on effects across the economy, including more expensive restocking for traders, higher distribution costs for manufacturers and strain on consumers already facing elevated living costs. It also noted debate over how to respond to the currency slide, including President Yoweri Museveni’s rejection of using foreign exchange reserves to support the shilling. Some lawmakers have called for tax relief on fuel, while the government has pointed to global oil prices, supply disruptions and a recent excise duty increase as contributing factors.

The central bank’s move reflects an effort to balance inflation control against slower growth, with policy makers trying to prevent higher energy and import costs from spreading further through the economy.