Demystifying BoU’s August 2025 Monetary Policy: What a 9.75% Rate Means for You

 The central bank’s latest Monetary Policy Statement held the key rate at 9.75% — but what does that actually mean for ordinary Ugandans?

BOU Holds the CBR at 9.75%

On August 12, 2025, the Bank of Uganda (BoU) announced in its Monetary Policy Statement (MPS) that it would hold the Central Bank Rate (CBR) steady at 9.75%. In plain language, BoU decided not to change its benchmark interest rate. This marked the fourth consecutive meeting with the CBR at this level. But if you’re not an economist, you might be wondering: why should I care?

Here’s why: The CBR influences many things that touch your daily life – from the interest on your business loan or mortgage, to the prices of food at the market, to the interest your savings earn in the bank.  The MPS isn’t just a document for policy wonks; it contains signals that can affect your wallet and your business decisions. In this article, we’ll break down BoU’s latest policy stance in simple terms, explain key concepts like the CBR, inflation, and monetary policy with everyday examples, and explore a new twist – why climate risk is entering Uganda’s economic conversation.

What is the Central Bank Rate (CBR)? (The “Price of  Money”)

Central Bank Rate (CBR) – This is the interest rate set by BoU that serves as a benchmark for all other interest rates in the economy. Think of the CBR as the “price of money” set by the central bank. When BoU lends to commercial banks, it uses the CBR, and that influences how much those banks charge you for loans or pay you on deposits. If the CBR goes up, borrowing money (loans) generally becomes more expensive and saving yields a bit more interest. If the CBR goes down, loans can get cheaper and savings earn a bit less. By keeping it steady at 9.75%, BoU is basically saying it wants the cost of borrowing and return on savings to remain about the same for now.

Everyday analogy: Imagine the economy is a car and BoU is the driver. The CBR is like the accelerator or brake. Pushing the interest rate up is like pressing the brake to slow down an overheating economy (when prices are rising too fast). Lowering the rate is like pressing the gas to speed up a sluggish economy. This time, BoU is keeping its foot steady, neither braking nor accelerating, because it feels the economic “speed” is just about right.

Inflation:Taming the Price Monster

Another term we hear a lot is inflation – but what is it? Simply put, inflation is the rate at which prices of goods and services increase over time. If inflation is 5%, it means on average things cost 5% more than they did a year ago. You’ve likely felt it when the same market shopping list that cost 100,000 UGX last year might cost 103,800 UGX this year (if inflation is 3.8%). It’s like a termite slowly eating away at the purchasing power of your money.

BoU’s job is largely to keep inflation low, stable, and predictable – they aim for about 5% inflation in the medium term(BOU, 2025) Why 5%? Because a little inflation greases the wheels of the economy, but too much can wreak havoc on family budgets and business costs.

Right now, inflation in Uganda is quite low and stable. In fact, headline inflation in July 2025 was 3.8%, and core inflation (which excludes volatile food and energy prices) was 4.1%(BOU, 2025) .These figures are actually below the BoU’s 5% target, meaning prices aren’t rising too quickly. In July, inflation even ticked down slightly from June (3.9% headline, 4.2% core)(BoU, 2025). This stability is thanks to factors like good food supply and lower transport costs – July saw cheaper food crops and transport fares, which helped ease price pressure(BoU, 2025). For you, low inflation means your shilling holds its value better – the prices of essentials aren’t climbing as fast, which is a relief for household budgets.

Everyday analogy: Think of inflation like weight gain for an economy. A small, steady gain (say 5% a year) is manageable, but a sudden jump (15% or more) is unhealthy. BoU acts like a diet coach for the economy, adjusting monetary “calories” (money supply and interest rates) to keep the “weight” (prices) in a healthy range.

Monetary Policy: BoU’s Balancing Act

When we talk about monetary policy, we simply mean the actions the central bank takes to influence the amount and cost of money in the economy. The CBR is BoU’s primary monetary policy tool, but they have others (like regulating money supply or exchange rates). The goal is usually to balance two things: price stability (control inflation) and economic growth. It’s a careful balancing act – lean too much one way and you either get high inflation or stifle growth.

Monetary policy can sound abstract, so let’s put it in context. BoU’s Monetary Policy Committee meets regularly (like they did in August) to decide if they should raise, lower, or hold the CBR. They look at a bunch of data: inflation trends, economic growth, the exchange rate, global events, even weather patterns nowadays. Then they choose a stance: tightening (higher rates), easing (lower rates), or neutral (no change). In August 2025, given the data, they chose to stay neutral – a cautious wait-and-see approach.

Governor Michael Atingi-Ego explained that with the world economy still volatile and some risks of inflation ahead, the MPC opted for caution. “Given the global uncertainties and elevated risks to inflation, the MPC has opted for a cautious monetary policy stance,” Atingi-Ego noted. In other words, don’t rock the boat when things are generally on course. This approach reflects prudent macroeconomic management, as economists would say – basically BoU not taking chances with either a spike in inflation or a shock to growth.

Why Did BoU Hold the Rate at 9.75%?

So, why exactly did BoU decide not to change the rate? Here are the main reasons from the MPS, translated into plain English:

• Inflation is under control: With inflation hovering around 3.8–4.1%, below the 5% target, there’s no emergency forcing a rate hike. Prices are stable, so BoU doesn’t need to slam the brakes by raising rates. In fact, BoU even slightly trimmed its inflation forecast for the coming year to about 4.5–4.8%(BoU, 2025) showing confidence that inflation will stay around those low levels.
• Economic growth looks positive: Uganda’s economy has been growing healthily – about 6.3% in FY2024/25 and forecasted around 0–6.5% for FY2025/26(UBOS, 2025). This growth is supported by things like a stable exchange rate, rising agricultural output, export expansion, and infrastructure projects. BoU doesn’t want to jeopardize this growth by raising rates unnecessarily. Keeping the CBR unchanged signals a desire to support continued growth while keeping prices stable.
• Global uncertainties and risks: The world economy has been a bit topsy-turvy – think of geopolitical tensions, fluctuating commodity prices, and evolving trade dynamics. There’s also talk of major economies possibly facing recessions or higher interest rates abroad. BoU cited global economic uncertainty and potential inflation risks as reasons to be cautious. In simpler terms, “there’s a storm out there, so let’s keep a steady hand on the wheel.” By not cutting rates either, BoU leaves itself room to act later if those global storms start affecting Uganda.
• Monitoring for any dangers ahead: BoU mentioned it’s watching out for certain “downside risks” – fancy term for things that could go wrong. These include trade barriers or a weaker shilling pushing import prices up, or bad weather hitting food production, or commodity prices falling that hurt export income. They also noted if things go unexpectedly well – say global oil prices stay low or geopolitical tensions ease – that could help the economy. The key point is, BoU is in a wait-and-see mode: ready to adjust the CBR in the future if inflation or growth veers off course. For now, steady as she goes.

In short, holding the CBR at 9.75% is BoU’s way of saying: “The economy is doing alright (inflation is low, growth is decent). We don’t see a need to change course at the moment, but we’re staying vigilant.” 

How Does This Affect You and Your Business?

Okay, so BoU has kept its policy stance unchanged. What does that actually mean for ordinary Ugandans and small business owners? Here are a few real-world implications:

• 💰 Loan Costs Stay Steady: If you have a business loan, a mortgage, or are thinking of borrowing money from a bank, the interest rates you pay are influenced by the CBR. With the CBR still at 9.75%, banks are not under pressure to raise their lending rates. That means the cost of loans is likely to remain around what it has been in recent months. For a small business owner repaying a loan, this stability is welcome – no surprise jump in monthly loan installments. It also means if you’re considering taking out a loan (to buy a piece of equipment or expand your shop), you can plan with some confidence that the interest rate on new loans won’t suddenly shoot up due to central bank actions. In practical terms, keeping the CBR steady helps maintain the status quo: borrowing money neither gets significantly cheaper nor more expensive overnight.
• 🏦 Savings and Deposits: The flip side of loan interest is the interest on your savings. Banks often adjust deposit rates in line with the CBR. Since the rate isn’t changing, the interest you earn on a savings account or fixed deposit will likely stay roughly the same. With inflation low at around 3-4%, a stable CBR means your savings interest (while not huge) is at least not being eroded by rising inflation. In fact, Uganda’s current situation of moderate interest rates and low inflation means savers enjoy a positive real return, which is good news if you’re tucking away money for the future. For example, if your savings earn, say, 5-7% and inflation is ~4%, your money’s purchasing power is growing modestly. Steady policy helps banks maintain these rates without scrambling to adjust to new CBR moves.
• 🛒 Prices of Goods (Inflation at the Market): BoU holding the line on policy is partly because inflation is already low. For you, this means no drastic price spikes are on the horizon from the monetary side. When the central bank holds rates, it’s signaling that it’s comfortable with the inflation outlook. Essential commodities like food, fuel, and transportation have seen stable or even slightly falling prices recently, and BoU’s decision aims to keep it that way. Of course, this doesn’t immunize us from all price changes (seasonal factors or supply issues can still cause some fluctuations), but it means BoU isn’t seeing warning signs of runaway prices. In everyday terms: you might notice your grocery basket isn’t getting pricier as fast as it did a couple of years ago when inflation was higher. Stable policy helps maintain that trend.
• 📈 Business Planning and Investment: For entrepreneurs and business owners, a stable CBR is like having a period of predictable weather in which to plan activities. When interest rates swing unpredictably, it can be hard to plan whether to take on new debt, how to price your products, or whether to invest in expansion. With BoU’s steady stance, you have one less variable to worry about in the short term. The environment is conducive for business planning: you can reasonably expect the cost of credit to remain in the current range, and inflation to remain moderate. This stability “reinforces confidence in Uganda’s economic trajectory amid global volatility”. For example, if you run a retail shop, you can plan inventory purchases knowing that neither your loan interest nor wholesale prices are likely to suddenly jump next month due to central bank moves. It’s a bit of breathing room for the private sector to continue what it’s doing without new shocks.
• 🤝 Investor and Consumer Confidence: When the central bank signals stability, it can boost confidence across the economy. Consumers might be more willing to spend if they’re not worried about imminent price hikes. Investors (local and foreign) often read a steady rate as a sign of economic health and prudent management. Over the last year, Uganda has shown resilience – stable inflation, a strengthening shilling, and solid growth. BoU’s consistent policy helps cement the sentiment that “Uganda has things under control.” For you, this might simply feel like a continued sense of normalcy in economic conditions – the opposite of chaos. And that encourages spending and investment, which in turn keeps the economy growing.

In summary, BoU’s decision to maintain the CBR at 9.75% means no sudden jolts for borrowers or savers. It’s about keeping the economic environment predictable and stable, which is generally good for anyone trying to run a household or a business.

My Question: Climate Risk in Monetary Policy

While the policy discussion focused heavily on inflation, growth, and global risks, I wanted to dig deeper into a new dimension: climate. Uganda’s economy is deeply dependent on rainfall and agriculture, yet we are already feeling the shocks of climate variability.

So I asked:

“Given the increasing climate-related shocks to food supply in Uganda, is the Bank considering integrating climate risk into its monetary policy models or inflation forecasts?”

Adam Mugume, Executive Director for Research at BoU, responded with three important insights:

• Climate risk is already factored in through rainfall volatility when projecting inflation and GDP.
• Going forward, BoU models will also account for rising temperatures.
• Climate shocks affect more than prices — they also pose risks to financial sector stability. To address this, BoU has drafted climate risk guidelines for financial institutions, awaiting approval.

This exchange underscored that monetary policy is no longer just about growth and inflation. Climate is now firmly part of Uganda’s economic management toolkit.

Climate Change: A New Factor in Monetary Policy Conversations

Beyond the usual talk of rates and inflation, the August 2025 MPS introduced a topic you might not expect from a central bank: climate change risk. The BoU is increasingly recognizing that climate and weather events are economic events too, especially in an agriculture-dependent country like Uganda.

Dr. Adam Mugume, BoU’s Executive Director for Research, has underscored that climate change is no longer a distant or abstract issue for economists – it’s “a present and pressing reality” that is impacting our economy here and now. How so? Uganda is witnessing changes in climate through increasing rainfall volatility and rising temperatures. In everyday terms, the rains have become more unpredictable (think of seasons when rain comes too late or too hard) and average temperatures are creeping up. These shifts might sound like environmental or agricultural issues, but they have direct financial and economic consequences:

• Unpredictable rains can lead to droughts or floods. A drought means a poor harvest for farmers, which can create food shortages and drive food prices up sharply (inflation spike). A flood can destroy infrastructure or crops, leading to losses and costly rebuilding. We’ve all seen how a delayed rainy season or too much rain at the wrong time can send the price of matooke or maize flour soaring. For a small business owner, that means higher input costs and a hit to customers’ wallets. For a bank, it could mean farmers and agribusinesses struggle to repay loans if their harvests are ruined.
• Rising temperatures likewise affect agriculture (some crops may yield less in excessive heat) and energy (think of strain on the power grid or needing more cooling). Higher temperatures and frequent heatwaves can also increase health expenses and reduce worker productivity. All these effects can slow down economic growth and, again, potentially push prices up.

BoU has taken notice. In fact, the central bank is integrating climate risk into its policy framework. According to the Governer Dr. Atingi Ego, the BoU team are working to ensure that climate considerations are not an afterthought but a central part of economic planning and financial supervision. One tangible step BoU has taken is drafting climate risk guidelines for financial institutions. In essence, BoU wants banks and lenders to explicitly consider climate-related financial risks in their operations – identifying, measuring, and managing those risks. For example, banks might need to assess how a flood could affect the value of collateral in certain regions, or how a trend of rising temperatures might impact the credit risk of agricultural loans. By issuing guidelines, BoU aims to make the financial sector more resilient to climate shocks.

Why bring climate into monetary policy? Because economic stability and climate stability are connected. The MPS itself flagged “adverse weather” as a downside risk to Uganda’s growth prospects(BoU, 2025). We don’t have to look far back to see why – in Fiscal Year 2019/20, Uganda incurred over USD 154 million in losses due to weather-related disasters. That’s money lost from our economy due to floods, landslides, droughts, and other climate calamities. Such shocks can spur inflation (if supply of goods falls), strain government budgets, and even threaten the stability of banks (through defaults or insurance payouts).

For ordinary Ugandans, this focus on climate risk by BoU could have long-term benefits. It means the central bank is thinking ahead to protect your livelihood from climate shocks. If banks lend more to climate-resilient projects (say, drought-resistant farming techniques or better water management) because of these guidelines, it could mean fewer nasty price surprises at the market in the future. It also signals to every business owner that factoring in weather and climate trends is now part of prudent financial planning.

Real-world example: Consider a farmer in Masaka or Gulu. If rainfall becomes erratic, her crop yields might swing wildly year to year. That’s not just her problem – it affects the price you pay for food and the loan she took from the SACCO. By acknowledging this, BoU is saying climate risk is an economic risk. They are effectively telling banks: “Pay attention to the climate; it can affect whether loans get repaid and whether prices stay stable.” This is a forward-thinking stance, and Uganda is among the early adopters in Africa of incorporating climate into financial risk management.

Why Climate Risk Matters for Uganda’s Economic Future

Climate risk isn’t just an environmental issue – it’s core to our economic and monetary conversations moving forward. Here’s a compelling way to think about it: Uganda’s economy lives on the farm as much as it does in the market. Agriculture is a backbone for us, and agriculture depends on the climate. If the rains fail or come too hard, the economy feels it. So, ignoring climate change would be like ignoring a leak in your boat while sailing – eventually, that leak can sink everything.

By making climate risk a central concern, BoU is effectively patching the leaks before they sink the ship. This benefits everyone:

• Households might see more stable food prices and fewer shocks to livelihoods if climate risks are managed.
• Businesses can plan better when they’re aware of climate trends (e.g., a food processing company can secure alternative suppliers knowing drought risk is rising).
• Banks and microfinance institutions become safer and sounder, if they account for climate when evaluating loans (reducing the chance of widespread defaults after a climate disaster).

Moreover, integrating climate risk pushes the conversation beyond just reaction. It encourages proactive investment in things like irrigation, sustainable energy, and climate-smart agriculture – because if the financial sector starts prioritizing these (perhaps due to BoU’s guidance), the whole economy becomes more resilient. In the long run, that means stronger growth and stability.

Uganda’s young population and entrepreneurs have big dreams – but those dreams need a stable climate and stable economy to thrive. BoU is making the case that you can’t have one without the other. We should all welcome climate risk as a core discussion point in economics, because it’s about safeguarding our future prosperity.

Wrapping Up: Stability, Awareness, and the Road Ahead

The August 2025 Monetary Policy Statement might sound technical, but its message is straightforward: Uganda’s economy is stable right now, and the central bank wants to keep it that way.

At the same time, BoU is broadening its focus. My exchange with Dr. Mugume highlighted that climate risk is now part of the central bank’s policy thinking. That means monetary policy is not just about the numbers anymore — it is also about safeguarding Ugandans against shocks that come from the skies above as much as from the markets.

Now, over to you: What do you think about the Bank of Uganda’s decision and its focus on climate risks? Have you felt the impact of interest rates or unpredictable weather on your business or household budget? How should we balance economic growth and climate challenges? Join the conversation in the comments – your perspective matters!