What Next After Rate Hike Fails to Save the Uganda Shilling?

[Da Dona]

The Bank of Uganda has turned to selling foreign currency reserves to stabilise the Shilling after a sharp interest rate hike failed to stop its slide against the US dollar.

The Central Bank raised its benchmark interest rate by 2.25 percentage points to 12% in October 2026. However, the Shilling continued to weaken, falling to around Shs4,500 against the dollar on Friday, October 23, according to the reported exchange-rate figures.

Bank of Uganda Governor Michael Atingi-Ego attributed the pressure to external factors, including conflict in the Middle East, rising oil prices and higher interest rates abroad. However, some analysts argue that the decline also reflects foreign investors withdrawing money previously invested in Ugandan government bonds and Treasury bills.

These investments had helped boost Uganda’s foreign exchange reserves, which rose to $6.7 billion by June 2026. However, reliance on foreign capital has left the economy vulnerable to sudden withdrawals when investors seek better returns elsewhere or fear currency losses.

The International Monetary Fund has also warned about risks linked to short-term foreign borrowing and Uganda’s growing debt-servicing costs.

The Shilling’s continued depreciation threatens to raise import costs, putting further pressure on businesses and consumers as imported goods and fuel become more expensive.

With the rate hike failing to halt the decline, the Bank of Uganda faces the challenge of using its foreign currency reserves to contain volatility while addressing the underlying pressures on the currency.

What more should the Bank of Uganda do to stabilise the Shilling, and how will its continued decline affect ordinary Ugandans?​