At a previous rate increase, Governor Michael Atingi-Ego said the move was necessary to contain inflation, limit the impact of higher energy prices and currency depreciation, and keep inflation expectations anchored.
The decision comes as Uganda faces mounting pressure on its foreign-exchange market. Business Insider Africa previously reported that the Ugandan shilling had fallen to its weakest level since 1993, as rising US bond yields, foreign investor withdrawals and strong demand for dollars weighed on the East African currency.
Shilling hits 33-year low
The shilling has also been hit by investors pulling funds from emerging markets amid a stronger US dollar and rising yields on American government debt. These pressures have complicated efforts to stabilise the currency and protect the country’s foreign-exchange reserves.
Uganda’s reserves stood at about $6.7 billion, according to the central bank’s annual report, covering roughly three months of imports, according to Bloomberg. That is below the 4.5 months of import cover recommended by the East African Community, leaving the country with limited room to defend its currency through direct market intervention.
President Yoweri Museveni has ruled out using foreign-exchange reserves to support the shilling, instead urging the country to reduce imports and increase earnings from exports and tourism.
Oil prices and weak reserves add pressure
Rising global oil prices have added to the pressure. Brent crude has surged by about 90% this year, according to the figures provided, as supply disruptions linked to the wars in Ukraine and Iran have tightened energy markets.
Higher oil prices increase Uganda’s demand for foreign currency to pay for imports, potentially worsening pressure on the shilling and reserves. The central bank’s latest move signals an increasingly aggressive effort to contain these risks, even as higher borrowing costs threaten to weigh on economic activity.