Senior Economist, Patrick Kiconco Katabaazi has welcomed the Bank of Uganda’s decision to raise the Central Bank Rate (CBR) to 12 per cent, saying the move could help stabilise the shilling amid mounting pressure from the weakening currency and rising global oil prices.
In a statement posted on his X handle on Thursday, Katabaazi, who doubles as the Rukiga County Member of Parliament, said the increase in the benchmark lending rate could make government bonds more attractive to foreign investors, potentially increasing demand for the shilling and easing depreciation pressures.
The Monetary Policy Committee of the Bank of Uganda raised the CBR by 225 basis points from 9.75 per cent to 12 per cent at a special meeting held on October 14, 2026, citing heightened geopolitical tensions in the Middle East, rising global oil prices and increasing risks of inflation.
Katabaazi said the intervention could help slow the movement of money out of Uganda’s economy, thereby supporting the local currency.
“By raising the rate, the Bank of Uganda has made government bonds attractive to foreign investors, who are expected to rush in and use dollars to buy shillings, thereby pushing the exchange rate back down,” he said.
His remarks come after the shilling weakened to a record low of Shs4,250 against the US dollar earlier this week, increasing concerns about the cost of imports and the potential impact on domestic prices.
However, Katabaazi warned that the rate hike could have negative consequences for businesses and borrowers, particularly as commercial banks adjust their lending rates in response to the central bank’s decision.
He said higher borrowing costs could discourage private-sector investment and encourage banks to channel more resources into government securities rather than lending to businesses.
“This will limit money supply (shillings) in the economy and will affect private sector growth,” he said.
Katabaazi added that reduced spending and import orders by traders could lower demand for dollars, potentially easing pressure on the shilling, although businesses dealing in imported goods would bear the cost of the tighter monetary policy.
He cautioned, however, that raising the CBR would not directly address external factors such as rising international oil prices, which continue to exert pressure on Uganda’s economy.
The economist urged the Bank of Uganda to work with commercial banks to manage the dollar requirements of key importers, saying a coordinated approach could help address external pressures on the shilling.
He also cautioned against using the country’s foreign exchange reserves to increase the immediate supply of dollars in the market, arguing that the intervention should focus on managing demand and supporting exchange rate stability.
“I am happy about the Bank’s intervention, but it could also explore my proposal to deal with external pressures,” he said.
In its October monetary policy statement, the Bank of Uganda said the rate hike was intended to contain inflationary pressures, limit the secondary effects of higher energy prices and currency depreciation, and keep inflation expectations anchored around its medium-term target of five per cent.
The central bank reported that annual headline inflation rose to 4.6 per cent in September, up from 4.1 per cent in August, largely driven by higher food prices and fuel costs.
Core inflation also increased to 3.7 per cent in September from 3.5 per cent in August, signalling that price pressures were gradually spreading across the economy.
The Bank of Uganda warned that inflation could rise further over the next 12 months, projecting headline inflation of between seven and 7.5 per cent and core inflation of between 5.5 and six per cent.
The central bank attributed the worsening economic outlook partly to disruptions in global shipping routes, higher freight and insurance costs, elevated oil prices and tighter financial conditions in international markets.
Uganda’s current account deficit also deteriorated by $1.4 billion to $4.6 billion, reflecting lower earnings from agricultural commodities, reduced tourism receipts and rising import-related costs.
Despite the external pressures, the central bank said economic activity remained resilient, although its growth forecast for the 2026/27 financial year had been revised downwards to between six and 6.5 per cent from the earlier projection of seven to 7.5 per cent.
The Bank of Uganda said it would continue monitoring domestic and international developments and take additional measures where necessary to preserve price and financial stability.
