The Bank of Uganda recently kept the Central Bank Rate (CBR) unchanged at 9.75 per cent, signalling its confidence in the price stability experienced in the economy today.
The Monetary Policy Committee (MPC) assessed that the current policy stance remains appropriate to support economic activity while ensuring inflation stabilizes around the target over the medium to long term, despite ongoing global economic uncertainties.
Michael Atingi-Ego, the governor of the Bank of Uganda, stated that inflation has remained below the medium-term target of 5 per cent. He attributed this stability to prudent monetary policy, coordinated fiscal policy, a stable exchange rate, declining global inflation, and favourable food and energy prices.
Over the 12 months to January 2026, annual headline inflation – a measure of the price change in the overall goods and services, averaged 3.5 per cent, while core inflation, which measures the change in prices minus, energy, fuels and utilities, averaged 3.8 per cent.
Headline inflation slightly increased to 3.2 per cent in January 2026, up from 3.1 per cent in December 2025, driven by higher inflation in some core components, which was partially offset by a decline in food crop inflation.
Similarly, annual core inflation rose to 3.3 per cent in January 2026 from 3.1 per cent, primarily due to higher services inflation, especially in passenger air transport. Annual food crop inflation moderated to three per cent in January 2026, down from 4.4 per cent in December 2025, supported by favourable weather conditions.
Energy, Fuels, and Utilities (EFU) inflation increased slightly to 1.7 per cent from 1.4 per cent, driven by modest increases in firewood prices. The inflation outlook has been slightly revised downward compared to the November 2025 forecast due to a modest appreciation of the exchange rate and lower international oil and food prices.
Inflation is projected to remain slightly below the target in 2026, within a range of 3.8 per cent to 4.3 per cent, before stabilizing around the target over the medium to long term.
This forecast is supported by continued prudent monetary policy, a stable exchange rate, and moderating global commodity prices, the bank said. However, risks to the inflation outlook, both upside and downside, remain significant.
Upside risks, according to the central bank, include stronger-than-expected domestic demand resulting from a positive output gap – where the economy operates above its potential – partly driven by more expansionary fiscal policy.
Other risks include domestic and external factors exerting higher- than-anticipated inflationary pressures, such as a persistently depreciated exchange rate, escalating geopolitical tensions that disrupt global supply chains, and adverse weather conditions that may reduce agricultural output and push food prices higher.
On the downside, risks include a sharper- than-expected slowdown in domestic economic activity, decelerating global growth due to trade-related shocks, heightened uncertainty, and a drop in commodity prices leading to disinflation.
Atingi-Ego noted that economic activity remained stable during the first three quarters of 2025, with an average growth rate of 6.3 per cent. This growth was largely driven by final consumption expenditure, which expanded by 14.7 per cent, mainly reflecting strong government consumption growth of 22.8 per cent, compared to 14.2 per cent growth in household consumption.
Despite a moderation in growth in the two quarters up to September 2025, high-frequency indicators and forecasts suggest that economic activity will increase in the quarter to December 2025 and in the second half of the financial year. Economic growth for FY2025/26 is projected to range from 6.5 per cent to 7 per cent.
Over the medium term, growth is expected to strengthen further, rising to an average of around eight per cent.
This outlook is supported by accelerated public investment, oil-related and infrastructure developments, government initiatives, continued improvement in the global economic environment, prudent monetary policy, and increased private sector activity.
Despite this favourable outlook, risks to the growth projection are tilted to the downside, the bank noted. These include ongoing geopolitical tensions, which could dampen global growth, disrupt trade routes and supply chains, and drive-up commodity prices, particularly oil.
On the upside, stronger-than-expected investment in the extractive sector, a more robust global recovery, and easing trade tensions could result in higher-than- expected economic growth.
“The economic environment continues to be characterized by heightened uncertainty, necessitating a cautious monetary policy stance. In light of recent economic developments and the balance of risks to inflation and growth, the MPC has kept the Central Bank Rate at 9.75 per cent,” Atingi-Ego said.
The MPC considers this decision to be consistent with its strategy of guiding inflation toward the target over the medium term. While maintaining its primary objective of price stability, the policy stance also supports smoothing economic fluctuations and fostering socio-economic transformation. Future policy decisions will remain data-dependent, guided by continuous assessments of domestic and global risks.