The Bank of Uganda has raised its benchmark interest rate from 9.75% to 12%, a sharp increase aimed at containing rising inflation and protecting the economy from higher fuel and import costs.
But what does the increase mean, and why has the central bank taken this decision?
The Bank of Uganda’s Monetary Policy Committee raised the Central Bank Rate (CBR) by 2.25 percentage points, or 225 basis points, at a special meeting on 14 October 2026.
The CBR is the rate the central bank uses to influence borrowing costs and overall financial conditions in the economy. When it goes up, commercial banks may also increase the interest rates they charge on loans.
The latest increase means borrowing could become more expensive for businesses and individuals.
The central bank is responding to growing pressure on prices, particularly from rising fuel costs and a weaker shilling.
Global oil prices have increased amid escalating conflict in the Middle East, while disruptions to shipping routes and energy infrastructure have pushed up transport, freight and insurance costs.
Because Uganda imports most of its fuel, higher global oil prices can quickly increase the cost of fuel in the country.
A weaker shilling can make the situation worse because importers need more Uganda shillings to buy the same amount of goods and fuel priced in US dollars.
Uganda’s annual headline inflation increased to 4.6% in September 2026, from 4.1% in August.
The increase was mainly driven by higher food crop and fuel prices.
Core inflation, which gives a better indication of underlying price pressures, also rose to 3.7% in September, up from 3.5% in August and 3.0% in May.
The Bank of Uganda is concerned that higher fuel and import costs could eventually push up the prices of other goods and services.
The Bank of Uganda uses the CBR to influence how much it costs to borrow money.
When the rate rises, commercial banks may raise their lending rates. This can make loans more expensive, causing households and businesses to borrow and spend less.
Lower demand can help slow the pace at which prices increase.
The higher rate can also help prevent temporary increases in fuel and import prices from spreading into other parts of the economy.
The central bank said the move is intended to “contain inflationary pressures”, limit the wider effects of higher energy prices and shilling depreciation, and keep inflation expectations close to its medium-term target.
For people and businesses planning to take out loans, the immediate concern is that borrowing could become more expensive.
Existing borrowers with loans linked to variable interest rates could also face higher repayment costs if their banks adjust lending rates.
On the other hand, higher interest rates can benefit savers if banks increase the rates they offer on deposits and savings products.
The wider aim is to prevent inflation from rising sharply, which would otherwise reduce the purchasing power of households.
Although Uganda is far from the conflict, developments in the Middle East can affect the Ugandan economy through global energy and trade markets.
Disruptions to oil supplies, shipping routes and energy infrastructure can push up international oil prices and the cost of transporting goods.
Uganda then faces higher costs when importing fuel and other products.
The Bank of Uganda said these global developments have also increased pressure on the shilling and created greater uncertainty for the economy.
The Bank of Uganda will be watching inflation, fuel prices, the exchange rate and global economic developments closely.
The 12% CBR is therefore aimed at preventing the current rise in fuel and import costs from turning into a broader and more persistent increase in prices across the Ugandan economy.
