Business 16 October 2026 Daily Monitor (Uganda)
Bank of Uganda Hikes Rates Dramatically Amidst Shilling Slide and Capital Flight
The Bank of Uganda has implemented emergency measures, including its largest interest rate hike in 15 years and direct foreign exchange market intervention, to combat a rapidly depreciating shilling and significant capital outflows. Source: https://www.monitor.co.ug/uganda/news/national/ailing-shilling-forces-bou-into-emergency-policy-tightening-amid-200m-capital-flight-5634250
The Bank of Uganda (BoU) has been compelled to take aggressive action to stabilize the Ugandan Shilling, which has experienced a sharp decline against the US dollar, breaching the Shs4,000 mark.
In a significant move, the central bank intervened directly in the foreign exchange market for the first time since June 2022, selling approximately $30 million. This intervention was part of a broader strategy that included an emergency Monetary Policy Committee (MPC) meeting. The outcome was a substantial increase in the benchmark Central Bank Rate (CBR), which was raised by 225 basis points from 9.75 percent to 12.0 percent. This marks the largest single monthly increase since October 2011 and brings the rate to its highest level since December 2016.
Adding to the tightening measures, the Cash Reserve Requirement for commercial banks was also increased from 11.0 percent to 13.5 percent. These drastic steps are a response to a confluence of external factors, including heightened geopolitical tensions in the Middle East, rising global energy prices, and tighter international financial conditions. These global pressures have widened Uganda’s current account deficit and contributed to a rise in headline inflation.
The situation has been exacerbated by a notable capital flight, with estimates suggesting over $200 million has left Uganda’s domestic market in recent weeks as offshore investors shifted capital away from local bonds towards dollar-denominated assets. The shilling had previously hit a record low against the dollar, making it one of the world’s worst-performing currencies tracked by Bloomberg in October.
While the BoU aims to curb inflation and stabilize the currency, economists are divided on the effectiveness of monetary tightening in addressing these supply-side shocks. Some argue it will dampen private sector credit growth, while others see it as a necessary step to control imported inflation and make local investments more attractive. The ultimate impact on vulnerable households and small businesses remains a key concern.