The Bank of Uganda (BOU) has raised its benchmark lending rate by 1 percentage point to 7.5% from 6.5% to smooth out rising inflationary pressures in the economy. 

The increase in interest rate was expected given the high spikes in commodity prices, largely triggered by disruptions to global supply chains. 

“Inflation is increasing rapidly and is spreading broadly across the basket of consumer goods and services,” Michael Atingi-Ego the BOU Deputy Governor said.

He was speaking during the release of the June Monetary Policy Statement at the Central Bank headquarters in Kampala. 

“The weakening of the Uganda Shilling against the US Dollar coupled with rising food and energy prices have worsened the inflation outlook since the April 2022 forecast round. Higher business costs are likely to spread into consumer prices, thereby pushing inflation higher in the coming months,” he said. 

The Uganda Shilling was trading at sh3,800 on Tuesday, a new low against the greenback. The depreciation of the Shilling has made imports of commodities such as petroleum, clothing, and wheat among others painfully expensive for importers.

The policy tightening by BOU is expected to hurt access to credit and growth projections according to analysts. 

Uganda’s inflation, a measure of changes in the cost of living jumped to 6.3% in May from 4.9% the prior month according to the Uganda Bureau of Statistics (UBOS).  

The latest inflation numbers released this week is the highest being reported by the UBOS since a 6.4% pick in June 2017.