Ugandan banks raise lending rates after BoU hike as economic pressures hit hard

Commercial banks are raising their lending rates following the Bank of Uganda’s decision to tighten monetary policy, setting the stage for more expensive credit for households and businesses already grappling with rising operating costs and inflationary pressures.

Stanbic Bank Uganda, dfcu Bank and Absa Bank Uganda have announced upward revisions to their prime lending rates, with the changes coming barely two weeks after the Central Bank raised its benchmark interest rate to 12 per cent from 9.75 per cent.

The adjustments will increase the cost of accessing credit for businesses seeking financing for expansion, working capital and equipment, as well as households borrowing to finance homes and other investments.

In a customer notice, Stanbic Bank said its local currency prime lending rate would increase from 19.5 per cent to 21.75 per cent per annum, effective December 1, 2026.

The bank will also raise its Local Currency Mortgage Reference Rate (MRR) from 17.5 per cent to 19 per cent over the same period. The changes will apply to both existing and new Uganda Shilling credit facilities.

dfcu Bank has announced that its Uganda Shilling prime lending rate will rise from 20 per cent to 22 per cent, while the rate on United States dollar-denominated loans will increase from 12 per cent to 14 per cent, effective December 1.

Absa Bank Uganda, meanwhile, has announced an increase in its lending rate from 19.5 per cent to 21.75 per cent, effective November 1, 2026.

The announcements signal an emerging transmission of the Central Bank’s tighter monetary policy into the commercial banking sector, where higher benchmark rates generally translate into more expensive borrowing.

The Bank of Uganda’s Monetary Policy Committee (MPC) raised the Central Bank Rate (CBR) by 225 basis points at an emergency meeting on October 14, in response to mounting inflation risks, pressure on the Shilling and a deteriorating global economic environment.

The increase, from 9.75 per cent to 12 per cent, was intended to contain inflationary pressures by making borrowing more expensive, moderating credit growth and demand, while supporting the Shilling against further depreciation.

The MPC cited escalating conflict in the Middle East, rising global energy costs and disruptions to the international economic environment as emerging threats to domestic price stability.

The monetary policy adjustment presents a difficult trade-off for an economy that depends on private-sector credit to finance production, trade and investment.

While tighter monetary conditions are intended to contain inflation, higher lending rates could further constrain businesses that rely on bank financing to purchase raw materials, import machinery, maintain inventories and expand operations.

For households with existing variable-rate loans, the changes could also translate into higher monthly repayments, depending on the terms of their loan agreements.

Pressure on private sector

The increases come at a time when businesses are already dealing with exchange-rate volatility and rising costs of imported inputs, particularly fuel, machinery and industrial raw materials.

A weaker Shilling makes imports more expensive, while higher energy costs feed into transport, manufacturing and distribution expenses. Businesses that depend on credit could therefore find themselves facing pressure on both their operating costs and financing expenses.

Small and medium-sized enterprises (SMEs), which often have limited access to alternative sources of financing, could be particularly exposed.

Higher borrowing costs may force some businesses to postpone expansion plans, reduce inventory purchases or pass additional costs on to consumers through higher prices.

For prospective homebuyers and property developers, the increase in mortgage reference rates could also make financing more expensive, potentially affecting demand and investment in the property market.

However, the impact on individual borrowers will depend on the applicable loan agreements, repayment structures and the banks’ lending terms. An increase in a bank’s prime rate does not necessarily mean every borrower will immediately pay the new headline rate.

Monetary policy dilemma

The Central Bank’s decision reflects the challenge of containing inflation without undermining economic activity.

By raising its benchmark rate, BoU seeks to moderate demand and prevent temporary price shocks, particularly those arising from higher international energy prices and exchange-rate movements, from becoming entrenched in the domestic economy.

But the transmission of tighter monetary policy through commercial banks also means businesses and households must contend with higher financing costs.

The coming months will therefore test how effectively the Central Bank can stabilise prices and the Shilling without significantly constraining private-sector investment, production and economic growth.