BoU cuts Uganda’s growth forecast to below 6% as inflation climbs

KAMPALA. The Bank of Uganda (BoU) has lowered its economic growth forecast for the 2026/27 financial year to between 5.5 percent and 6 percent, citing rising fuel prices, shilling depreciation and worsening global financial conditions.

The revised projection, down from an earlier forecast of 6 percent to 6.5 percent, signals growing pressure on the domestic economy as geopolitical tensions in the Middle East drive up international energy prices and increase the cost of imports.

In its November Monetary Policy Statement released on November 9, the central bank also warned that inflation could rise further over the next 12 months, with headline inflation projected to average between 7.5 percent and 8 percent, while core inflation is expected to range between 6 percent and 6.5 percent.

The projections are above the Bank’s medium-term inflation target of 5 percent and could translate into higher costs for businesses and households if the pressures persist.

Despite the deteriorating outlook, the Monetary Policy Committee (MPC) maintained the Central Bank Rate (CBR) at 12 percent, the same level set in October.

However, the central bank widened the CBR corridor from plus or minus two percentage points to plus or minus three percentage points, a move it said was intended to support tight shilling liquidity.

Consequently, the rediscount rate increased to 16 percent from the previous 14 percent, while the bank rate rose to 17 percent from 15 percent.

The rediscount and bank rates are reference rates used in the central bank’s monetary operations and its lending arrangements with commercial banks.

The widening of the corridor comes at a time when businesses are already facing pressure from higher financing costs, currency depreciation and rising input prices.

BoU Governor Michael Atingi-Ego said the decision to maintain the policy rate was intended to allow previous monetary policy measures to take effect while the central bank assesses developments in the domestic and global economy.

Inflation pressures

The central bank said inflation accelerated sharply in October, with headline inflation rising to 5.8 percent from 4.6 percent in September.

Core inflation, which excludes some volatile components such as food crops and energy, also increased to 4.4 percent from 3.7 percent over the same period, indicating that price pressures were spreading beyond fuel and food.

The increase was largely attributed to energy and weather-related shocks, with the depreciation of the shilling and higher international oil prices adding to the pressure.

BoU warned that the pass-through of higher fuel prices and exchange rate depreciation to other goods and services was continuing, with the full effects yet to be felt.

It identified further shilling depreciation, elevated global oil prices and adverse weather conditions as major risks that could push domestic consumer prices higher.

A worsening current account deficit and reduced portfolio investment inflows could also weaken the shilling, making imported goods and production inputs more expensive.

The central bank cautioned that renewed increases in global food and energy prices could also force advanced economies to maintain restrictive monetary policies or tighten further, potentially worsening global financial conditions and increasing pressure on the local currency.

However, it said favourable weather could improve agricultural output and food supplies, helping to moderate food crop prices and overall inflation.

Growth loses momentum

The inflation concerns come alongside signs of slowing economic activity.

BoU’s high-frequency indicators estimate that the economy grew by about 5.3 percent in the three months to September, compared with 6.8 percent reported by the Uganda Bureau of Statistics for the quarter ended June 2026.

Although business and consumer sentiment remained optimistic in the three months to December, the central bank said confidence had weakened, reflecting less favourable expectations about future economic conditions.

The slowdown has been attributed to a deteriorating global environment and the delayed effects of drought experienced in the first half of the year.

Tighter domestic and international financial conditions, exchange rate depreciation and geopolitical uncertainty are also expected to weigh on economic activity.

Over the medium term, however, the central bank projects economic growth to strengthen, averaging about 8 percent over the next five years.

This outlook is underpinned by increased private investment, stronger export performance, anticipated developments in the oil sector and continued implementation of government’s Tenfold Growth Strategy.

The bank nevertheless warned that delays in oil production, tight shilling liquidity, which could constrain private sector credit, adverse weather conditions and persistent global economic uncertainty could undermine the recovery.

It also cited lingering health-related travel restrictions affecting tourism and related services as another downside risk.

The MPC said the current financial conditions were sufficiently tight to contain inflationary pressures, despite the uncertainty surrounding the global economic environment.

It will continue monitoring incoming economic data, the inflation outlook and developments in global financial markets before making further monetary policy decisions.

The central bank said its temporary tightening measures were intended to safeguard medium-term macroeconomic stability, which it described as a foundation for Uganda’s tenfold economic growth ambition.