Bank of Uganda Raises Interest Rate to 12% to Stabilize Shilling

The Bank of Uganda raised its main interest rate by 2.25 percentage points to 12.0% during an emergency policy meeting on Wednesday. The move aims to halt a sharp decline in the shilling, which has fallen approximately 11% against the U.S. dollar this year and hit repeated record lows over the last six weeks.

Governor Michael Atingi-Ego stated that the depreciation could rapidly amplify inflation, even though current inflation remains at 4.6%, below the 5% medium-term target. The central bank attributed the currency pressure to reduced inflows and high demand for hard currency from oil importers, driven by global energy price spikes resulting from the Iran war.

The shilling rose more than 2% against the dollar following the announcement. While the central bank has previously raised cash reserve requirements for commercial banks, it maintains that it does not plan to intervene directly in the currency market.