Statement of the problem
The Central Bank Rate (CBR) is the Bank of Uganda’s main policy instrument for
influencing lending rates, inflation, credit conditions and economic growth (Kakeeto, 2023).
Its effectiveness depends on how fully changes in the CBR pass through to commercial bank
lending rates. In Uganda, this pass-through appears incomplete. The average shilling lending
rate fell from 19.3% in FY2019/20 to 17.89% in FY2023/24 (Bank of Uganda, 2025;
MoFPED, 2024). When the CBR was then cut by 50 basis points, from 10.25% in August
2024 to 9.75% in October 2024, the average rate did not fall further but edged up to 18.16%
in FY2024/25 (MoFPED, 2025). Private sector credit grew by 7.34% in FY2023/24 and 9.1%
in FY2024/25 (MoFPED, 2024, 2025). The limited reach of formal banking, with many
adults relying on mobile money rather than bank accounts (Klapper et al., 2025) may further weaken transmission.
Meanwhile, real GDP growth rose from 5.3% in FY2022/23 to 6.1% in FY2023/24 and 6.3%
in FY2024/25 (MoFPED, 2024, 2025). This raises a puzzle: growth accelerated while lending
rates barely moved and credit growth stayed modest, so it is unclear whether monetary policy
contributed to growth at all. Other factors, including government expenditure, inflation,
foreign investment and export earnings, may explain it. The question has also become more
pressing. On 14 October 2026, the Bank of Uganda raised the CBR by 225 basis points to
12% at a special Monetary Policy Committee meeting, citing a weakening shilling, rising fuel
costs and inflationary pressure (Nairametrics, 2026). How far this tightening will reach
borrowers and growth is unknown.
Existing studies on Uganda have addressed the links separately. On pass-through, Kakeeto
(2023) found a moderate but significant effect of the CBR on commercial bank rates using
monthly data for 2018 to 2022, and Kibuuka (2023) found positive short-run and long-run
effects using a VECM on monthly data for 2012 to 2022. Conesa Martinez et al. (2025)
showed, with loan-level household data for 2017 to 2023, that a 100-basis-point rise in the
policy rate raises household lending rates by about 63 basis points within a quarter, with
larger effects on weaker banks. On growth, Mugisha (2026) found that the CBR, inflation and
the lending rate all have negative long-run effects on GDP, using quarterly data for 2017 to
- These studies mostly use short samples that end before the 2024 easing and the 2026
tightening, and the growth study omits fiscal and external controls such as government
expenditure, foreign investment and exports and does not test pass-through in the same
framework. No study found examines the CBR, lending rates and growth together over the
full period since the CBR was introduced in 2011. This study therefore examines the effect of
the CBR on commercial bank lending rates and economic growth in Uganda from 2011 to
2026, to establish how far monetary policy adjustments translate into lending conditions and
economic performance.
