What the Bank of Uganda’s rise to 12 per cent means for the shilling, fuel and loans

What the report says

The Bank of Uganda raised its Central Bank Rate from 9.75% to 12% on Wednesday, the biggest single increase since 2011 and the first policy move since October 2024, according to Uganda Business News. The decision came as officials sought to curb pressure from a weaker shilling and higher fuel costs that could feed broader inflation.

The outlet reported that recent inflation readings remained below the central bank’s medium-term target, but the bank’s outlook had worsened. Core inflation was projected to average 5.5% to 6% over the next year, while headline inflation was expected to run at 7% to 7.5%. Uganda is a net importer of petroleum products, so a softer shilling can quickly raise the local price of fuel and imported goods. The article also noted that some foreign investors had reduced exposure to Ugandan government debt, adding to dollar demand.

Higher rates are intended to support the shilling by improving returns on shilling assets and encouraging capital inflows, but the effect is not guaranteed. The report said the dollar weakened after the announcement, suggesting markets reacted immediately to the central bank’s move, though one day’s trading does not show whether the currency slide has ended.

The policy change is also relevant for households and businesses because bank lending costs may rise, even if the pass-through is uneven. Uganda Business News said loans are influenced by funding costs, risk and other factors, but a higher benchmark rate generally makes borrowing more expensive over time.