Bank of Uganda sells foreign exchange to support shilling after raising rates to 12.0%
Key Facts
The Bank of Uganda intervened by selling foreign currency in the market to support the shilling after the currency resumed its losses despite an increase in the benchmark interest rate to 12.0% at an emergency meeting in October 2026. Reuters cited a message the central bank sent to banks on the day of the intervention saying: "The Bank of Uganda is in the foreign exchange market selling." The bank did not disclose the size of its market sales. The rate decision raised the benchmark by 2.25 percentage points from 9.75%, according to Investing's coverage of the emergency meeting. Before the meeting, the central bank said it did not target a specific exchange rate for the local currency, according to Reuters. It affirmed at the time that it would use a range of tools to manage excessive volatility in the foreign exchange market.
The monetary policy move followed accumulated shilling losses against the dollar, estimated in Investing's coverage of the rate decision at about 12% from the start of 2026 to the time of publication. Earlier coverage of the emergency meeting, dated 13 October 2026, had recorded the currency's continued decline in trading. The exchange rate in that report stood at 4,139.40 shillings per dollar at 3:45 p.m. Kampala time. The shilling was down 0.2% during the session after paring steeper losses recorded earlier in trading. The central bank thus entered its emergency meeting with a daily currency decline adding to its losses against the dollar since the start of the year.
Trading following the rate increase initially signalled an improvement in the shilling before losses resumed. In a report dated 15 October 2026, Reuters cited commercial banks quoting the dollar at 3,990/4,000 shillings. Those quotes compared with 4,080/4,090 shillings per dollar at the previous Thursday's close, reflecting a decline in the number of shillings needed to buy a dollar during that session. But Reuters later reported that the recovery accompanying the rate increase announcement did not last. It said the currency "subsequently resumed its losing trend" and had weakened beyond its level at the time of the decision.
Corporate demand for dollars had emerged as a source of pressure on the currency before the monetary tightening decision and the latest intervention. In coverage published by Investing during September, Adam Mugume, the central bank's head of research and policy, said manufacturing companies and the energy sector continued to drive strong dollar demand. Mugume linked another aspect of foreign exchange market participants' behaviour to uncertainty over how long the conflict with Iran might last. He said that uncertainty had prompted some participants to make forward currency purchases to lock in exchange rates. After the rate increase, Reuters cited traders as saying weak export earnings and higher energy prices would keep the shilling under pressure. Their assessment that pressure would persist came despite the currency's recovery following the decision, with export earnings and energy costs remaining among the main factors they cited.