Louis Kasekende, the Bank of Uganda deputy governor, said the rise was aimed curbing the growth in commercial bank credit, encouraging savings, supporting the exchange rate and reducing inflation.
â€œInflation has risen since the end of 2010, mainly because of food price shocks and exchange rate depreciation. Therefore, the Central Bank will raise the CBR to 16% for September,â€ he told reporters at the bank headquarters in Kampala.
Ugandaâ€™s headline and core inflation hit highs of 21.4% and 20% last month, far from the 5% core inflation target.
Kasekende warned that the rate could go higher in subsequent months with the inflation rate. He noted that rise in the rate would support the shilling and bring down inflation through higher commercial bank lending rates.
Kasekende added that the band around the rate had been widened to four percentage points and that the bank would ensure that the seven-day interbank rates remain within this band.
Central Bank sets September lending rate at 16%