The Bank of Uganda held its key lending rate at 9.75% for the eighth consecutive month, balancing subdued domestic inflation against growing external risks from the ongoing conflict in the Middle East.
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Uganda holds key rate at 9.75% as Iran war clouds outlook
The Bank of Uganda held its key lending rate at 9.75% for a third consecutive meeting, citing stable domestic inflation while signaling increased vigilance over the economic fallout from the war in Iran.
"The Committee assessed that, although risks arising from the conflict in the Middle East could exert upward pressure on inflation, the current monetary policy stance remains appropriate and well aligned with prevailing macroeconomic conditions," Governor Michael Atingi-Ego said in a statement.
The decision keeps the benchmark rate at a level it has maintained since October 2024. Uganda’s inflation edged up to 3 percent in April from 2.8 percent in March, according to the central bank. The monetary policy committee projects inflation will land between 5 percent and 5.3 percent over the next 12 months, remaining near the bank's medium-term target of 5 percent.
The hold highlights the difficult balancing act for the East African nation, which is navigating the dual impact of the Middle East conflict. While the war threatens to increase inflationary pressures through higher global energy prices, it could also significantly boost the value of Uganda's own crude oil, with first exports scheduled for October.
Oil Exports on the Horizon
A major factor in Uganda's economic calculus is its anticipated entry into the global oil market. A 230,000-barrel-a-day project led by France’s TotalEnergies and China’s CNOOC is on track to begin exports in October. Higher global oil prices, a direct consequence of geopolitical instability like the Iran war, present a potential windfall for the country's export revenues.
The conflict has already introduced significant volatility into energy markets. The International Energy Agency has flagged the potential for greater price swings, while OPEC has trimmed its demand forecast, reflecting global economic uncertainty [4]. The war has disrupted shipping through the Strait of Hormuz, a chokepoint for about 20 percent of the world's oil supply, according to a recent PBS News Hour report [3].
Geopolitical Crosscurrents
The central bank's cautious stance reflects the complex international dynamics at play. The United States is reportedly pressuring China, a key partner in Uganda's oil project and the primary buyer of Iranian oil, to help mediate the conflict [3]. However, analysts suggest Beijing is unlikely to exert significant leverage, creating a prolonged period of uncertainty.
For Uganda, this translates into a precarious economic environment. While the nation stands to benefit from its status as Africa's top coffee exporter and a future oil producer, the external shocks from the conflict could easily derail its stable inflation trajectory. The central bank's decision to hold rates signals a wait-and-see approach as it monitors these unfolding global events.
This article is for informational purposes only and does not constitute investment advice.
[1] Uganda’s Central Bank Holds Key Lending Rate at 9.75% - WSJ[2] Uganda’s central bank holds key lending rate at 9.75%[3] List of 14 Income Tax Changes Proposed in Finance Bill 2026[4] May 13, 2026 - PBS News Hour full episode[5] Oil rises as IEA flags greater volatility ahead, OPEC cuts demand forecast
