The Bank of Uganda held its benchmark Central Bank Rate at 12 per cent on Monday as a weakening shilling and higher prices at the pump station held inflation up and choked economic growth. While releasing the Monetary Policy report on November 9, Bank of Uganda Governor Michael Atingi-Ego described the tightening as temporary, meant to secure medium-term stability. The pause follows a special meeting in October that raised the rate from 9.75 per cent after a rapid depreciation of the shilling, which triggered a spike in the price of different products. The central bank says that the 225-basis-point increase has yet to transmit fully through the economy. Headline inflation, the change in the overall prices of goods and services, rose to 5.8 per cent in October from 4.6 per cent in September, above the bank’s 5 per cent medium-term target, with food inflation at 7.6 per cent. The bank now expects headline inflation to average 7.5 to 8 per cent over the next year, up from its earlier forecast of 7 to 7.5 per cent. The bank’s main worry is the shilling. The shilling averaged 4,170 to the dollar in October, 20.4 per cent weaker than a year earlier and 7.8 per cent down on September. The current account deficit, where a country spends more on foreign goods, services, income, and transfers than it earns from them, widened to $4.9 billion in the 12 months to September from $3.5 billion, as fuel, freight and debt interest payments grew. Reserves stand at about $7 billion, or 3.9 months of import cover. The bank also raised the cash reserve requirement to 13.5 per cent. The optimism over Uganda’s growth prospects at the start of 2026 has cooled. The bank estimates the economy expanded about 5.3 per cent in the quarter to September, against 6.8 per cent in the quarter to June. It has cut its forecast for the 2026/27 financial year to 5.5 – 6 per cent from 6 – 6.5 per cent, citing delayed oil production, drought and tighter financial conditions. It still projects growth averaging about 8 per cent over the medium term. Borrowers are set for harder times. Private sector credit growth accelerated to 19.8 per cent annualised in the three months to September, driven by dollar loans averaging 7.7 per cent interest, against 17.5 per cent for shilling loans, according to the monetary report. The bank warns that depreciation of the Uganda shilling raises repayment burdens on those borrowers. Many borrowers might struggle to pay back the loans, raising the possibility of non-performing loans. Government is not spared either. The shilling has weakened about 9.9 per cent beyond the 3,796 assumed in the 2026/27 budget, while budgeted foreign-currency obligations total about $2.09 billion. This means that the value of the amounts to be disbursed from the government coffers will be less. While Bank of Uganda says the inflation rate in the country is lower compared to the other countries in the region, risks remain. A deeper depreciation of the shilling slide, El Niño weather and renewed Middle East tension could all push prices higher.The post Bank of Uganda maintains key rate at 12 per cent appeared first on The Observer Media Ltd.