The Bank of Uganda’s decision to maintain its Central Bank Rate (CBR) at 12 per cent in November signals that borrowing costs are likely to remain high as policymakers battle rising inflation and pressure on the shilling. For businesses and investors, the decision presents a difficult balance: maintaining economic stability while ensuring access to affordable financing for growth.
Announced on November 9, the decision followed October’s 225-basis-point increase from 9.75 per cent. Rather than introduce another increase, the Monetary Policy Committee opted to allow the earlier tightening measures to take effect.
The inflation outlook explains the Bank’s caution. Uganda’s annual headline inflation rose to 5.8 per cent in October, from 4.6 per cent in September. Food inflation increased sharply to 10.7 per cent, while core inflation reached 4.4 per cent. BoU expects headline inflation to average between 7.5 and 8 per cent over the next year, above its medium-term target of 5 per cent.
At the same time, the Bank revised its 2026/27 economic growth forecast downwards to 5.5–6 per cent, from an earlier projection of 6–6.5 per cent. Higher global energy prices, exchange-rate pressures and tighter financial conditions are among the risks weighing on the outlook.
The policy decision has direct implications for businesses that depend on bank financing. Uganda’s weighted average lending rate on shilling-denominated loans had already reached 17.9 per cent in August, before October’s increase. Commercial banks have subsequently announced higher prime lending rates, with Absa moving to 21.75 per cent in November and Stanbic and dfcu announcing rates of 21.75 and 22 per cent respectively for December.
For manufacturers, traders and small businesses, expensive credit can delay investment, increase working-capital costs and constrain expansion. Households may also face higher loan repayments, depending on their borrowing arrangements.
The Bank of Uganda’s lending survey provides an interesting indication of this pressure. While 77.4 per cent of commercial banks expected enterprise credit demand to increase in the quarter ending December, only 8.8 per cent of surveyed businesses had applied for loans in the three months to September, down from 17.6 per cent in the preceding quarter. The figures measure different things, but they point to a potential gap between businesses’ financing needs and their willingness or ability to borrow.
There is an economic argument for BoU’s approach. Higher interest rates can help moderate demand, stabilise the currency and prevent temporary price increases from becoming entrenched. However, economist Dr Fred Muhumuza has questioned whether monetary tightening adequately addresses inflation driven by external costs and government financing pressures. He warns that expensive credit could restrict productive private-sector investment.
The Government has defended the tighter approach, arguing that allowing currency depreciation and inflation to continue would make goods and services even more expensive. The competing positions illustrate the challenge: inflation must be controlled, but the cost of doing so should not unnecessarily weaken investment and job creation.
A regional perspective
Tanzania provides a useful comparison. Its Central Bank Rate stood at 6.25 per cent in the fourth quarter of 2026, while October inflation was 4.2 per cent. Tanzania also recorded economic growth of 6.5 per cent in the second quarter of 2026.
Uganda’s policy rate is almost twice Tanzania’s, reflecting different inflation pressures and monetary conditions. The comparison is not a direct performance ranking because the growth figures cover different reporting periods and the countries operate under different monetary frameworks.
Nevertheless, Tanzania demonstrates how lower and more stable inflation can give a central bank greater room to maintain lower interest rates. Uganda’s priority should therefore extend beyond monetary tightening to addressing the pressures behind rising prices, including food supply disruptions, energy costs, exchange-rate volatility and dependence on imported production inputs.
Uganda’s ambition to grow its economy from approximately US50 billion to US500 billion by 2040 will require substantial private investment and affordable long-term financing. Finance Minister Henry Musasizi has called on commercial banks to lower lending rates and increase credit to productive sectors.
That ambition will be difficult to achieve if businesses face persistently expensive financing. While BoU’s November decision gives its previous measures time to work, sustainable price stability will also depend on stronger domestic production, agricultural productivity, energy security, export growth and prudent public financing.
For investors and business leaders, the immediate outlook is one of continued caution around borrowing costs. The broader policy challenge is ensuring that the fight against inflation does not undermine the productive investment Uganda needs to accelerate economic growth.
