In a question-and-answer session following a special Monetary Policy Committee briefing, Bank of Uganda Governor Dr. Michael Atingi-Ego and Executive Director of Research Dr. Adam Mugume explained that the latest monetary tightening is intended to slow shilling depreciation and prevent supply-driven price pressures from spreading across the economy. Core inflation is projected to rise to between 5.5% and 6%, while higher interest rates may increase variable-rate loan repayments and reduce private sector credit.
The shilling’s depreciation primarily reflects a weaker current account and moderated portfolio inflows. The trade deficit widened to USD 2.8 billion from USD 2.4 billion, while the services and primary income deficits also increased. Tightening is expected to temper import demand and support portfolio inflows, but economic growth is projected to moderate to between 6% and 6.5%, about 0.5 percentage points below the previous outlook.
The Bank does not target a specific exchange rate but seeks to limit excessive volatility. Its measures include a 150-basis-point increase in the Cash Reserve Requirement, tighter access to central bank liquidity and foreign exchange swaps with commercial banks. Reserves were estimated at USD 6.6 billion to USD 6.7 billion, and the first oil export receipts are expected to enter the balance of payments around February or March 2027.