The Bank of Uganda forecasts a strong growth of between 6.5 percent and 7 percent this year, a sign that the ongoing conflict in the Middle East has so far not had a major adverse effect.
However, The Central Bank Governor, Michael Atingi-Ego warned that if the US/Israeli war on Iran takes longer to end, it will have adverse effects.Governor Atingi-Ego expressed the caution at the issuance of the latest Monetary Policy Statement which saw the Central Bank Rate (the indicative rate of the cost of money for the next two months) determined at 9.75 percent.
So far, the 10-week war has seen inflation rise slightly, though remaining within the BoU midterm target of not more than 5 percent, but the bank is revising the projections to between 5 percent and 5.3 percent.
The Monetary Policy Committee meeting of the Bank assessed that the current monetary policy stance remains appropriate, even as global uncertainties, particularly the conflict in the Middle East, continue to pose risks to inflation and the broader economic outlook.
The strong growth projection is based on the high activity across agriculture, industry, and services, according to Atingi-Ego.”Future monetary policy decisions will remain data-dependent and guided by the evolving outlook and balance of risks,” he says, adding, “however, the conflict in the Middle East has resulted in significantly higher global oil prices and heightened uncertainty surrounding the economic outlook.
“The slight rise in inflation in April 2026 to 3 percent was driven by the sharp increase in energy costs, while the Uganda shilling has depreciated by about 5.4 percent against the US dollar since February.”Although sustained increases in fuel prices could generate broader second-round inflationary pressures across the economy, it remains too early to fully assess the magnitude and persistence of these effects,” he says.
Inconsistencies in statements by US president Donald Trump have not helped the uncertainty and have instead abetted price volatility especially for petroleum products.”Uncertainty surrounding the conflict duration and severity, and implications for the Ugandan economy, has clouded the outlook,” the governor says.
He adds that based on the assumption that global oil prices have peaked and are expected to gradually decline to pre-conflict levels by 2027, the near-term inflation outlook has been revised upwards, with core inflation projected to range from 5.0 to 5.3 percent over the next 12 months.
The economy’s positive indicators will also depend on the reaction of other countries especially if the war is prolonged.”Should central banks in advanced economies tighten monetary policy to contain inflation, this could exert additional pressure on the shilling and consequently raise inflation,” he says, adding that adverse weather conditions also remain a major risk to agricultural production and food prices.
Another risk is that prolonged geopolitical tensions could dampen domestic demand and moderate inflationary pressures, while favourable weather conditions could improve agricultural output and food supply, easing inflation.Further uncertainty is also a threat to households and businesses may reduce spending, which could moderate inflationary pressures but also weaken economic growth.
Overall, the balance of risks to the inflation outlook remains tilted to the upside, as stronger-than-expected investment in the extractive sector could further boost economic activity, according to the governor.The governor also confirmed that BoU had raised the Cash Reserve Requirement (CRR) for banks to ensure a stronger and adequately liquid financial sector amidst the global uncertainties.
CRR is the portion of customer deposits that commercial banks must hold as reserves, typically in cash or near-cash assets with the central bank, as part of the efforts to strengthen the sector’s resilience and align with international standards. Economist Emmanuel Okware calls this a contradiction; increasing the CRR while maintaining the CBR at a high 9.7 percent.”What is the target for each of them or both – incoherent, inefficient, and contrary to sound monetary principles,” he argues, but says the CRR rise could be meant to control high liquidity or a surge in money supply. URN