Bank of Uganda takes action on falling shilling

[Da Dona]

The US dollar rose to about Shs4,153 on the Ugandan market on Tuesday, October 13, putting further pressure on the shilling and increasing the cost of imported goods. Meanwhile, petrol prices have climbed above Shs7,000 per litre in some areas, while diesel is selling between Shs6,540 and Shs7,000 per litre.

In response, the Bank of Uganda has raised its benchmark interest rate from 9.75% to 12% in a move aimed at stabilising the weakening shilling and containing rising inflation driven by higher fuel prices.

The 2.25 percentage-point increase, announced on Wednesday, October 14, is the largest single rate hike since 2011 and the first change since October 2024.

The decision comes as inflationary pressures increase, with annual headline inflation reaching 4.6% in September. Petrol prices rose by 30.9% compared to the same period last year, while diesel prices increased by 42.5%.

The weakening shilling has made imported fuel and other goods more expensive. By raising interest rates, the central bank hopes to attract investors to Ugandan financial assets, increase demand for the shilling and prevent rising fuel costs from triggering wider price increases.

However, the higher rate could make borrowing more expensive for individuals and businesses as commercial banks adjust their lending rates. Borrowers with variable-rate loans could face higher repayments, depending on their agreements, while savers may benefit if banks increase deposit interest rates.

The central bank has warned that inflation could rise further over the next year, with core inflation projected to average between 5.5% and 6%, above its medium-term target of 5%.

Although the move could help stabilise the shilling, it cannot directly lower international oil prices. The impact on fuel prices and the wider economy will depend on exchange-rate movements, global oil prices and how commercial banks respond to the new rate.

Will the Bank of Uganda’s decision help stabilise the shilling and bring relief to Ugandans facing rising fuel prices and the cost of living?​

 

[Bemendazole]

Ug should do all necessary means to export cash crops (such as coffee) asap even by causing farmers to sell their crops below the market prices so that a country can earn foreign currency and stabilize the Ugx.