Monetary policy framework

The Bank of Uganda (BoU) has been given a mandate to pursue the economic goal of price stability by Articles 161 and 162 of the 1995 Constitution of the Republic of Uganda and the Bank of Uganda Act (Cap 51), Laws of Uganda, 2000. Therefore, keeping our economy healthy is one of the most important jobs of the BoU.

Price stability means that inflation remains low and stable over the longer run. When inflation is low and stable, people can hold money without having to worry that high inflation will erode its purchasing power. For example, a 2 annual inflation rate means that, on average, a shilling buys 2% fewer goods and services than it did the year before. That seems manageable, but what if it was 10% or 100%? Thus, with stable prices, consumers and businesses don’t have to worry about rising or falling prices when making plans or when borrowing or lending for long periods. In short, the economy can run efficiently when inflation is low and stable.

But how low is low? The BoU seeks to achieve inflation that averages 5% overtime. The 5% is the rate that is consistent with the sustainable economic growth level.

The BoU pursues the price stability objective through the conduct of monetary policy. It uses a variety of policy instruments to manage financial conditions that encourages progress toward its price stability mandate. BoU, in its regularly scheduled monetary policy committee (MPC) meetings decides whether to change the central bank rate (CBR). The CBR is the policy rate, which means it is the rate it chooses to achieve its policy goals of price stability. The BoU sets the target range for the CBR with an upper and lower band. Once, the CBR is set, it then implements monetary policy by selling/buying financial instruments (repurchase/reverse agreements and the Bank of Uganda Bills) to influence the financial conditions to ensure that money market interest rates are at levels consistent with the CBR.

After each MPC meeting, the Governor announces the MPC decisions (either to leave the CBR unchanged, decrease the CBR, or increase the CBR). The MPC issues press releases, and the Governor holds a press conference directly after each meeting to explain the decisions. A snapshot of the monetary policy framework is shown in the Table below:

Snapshot of the BoU monetary policy framework


Price stability, defined as 5 percent core inflation in the medium term (2-3 years ahead)


Central bank rate (CBR)

Operational target

7-day Interbank rate

Intermediate target

Medium term core inflation forecast


Repurchase agreements/reverse repurchase agreements & Bank of Uganda Bills (28-252 days)