Bank of Uganda's Monetary Policy Statement of February 9, 2026.

Three days before the Bank of Uganda's reading of the Monetary Policy Statement (MPS), I wrote a post on my LinkedIn. Quite objectively, in that post, I said that if I had a seat on the Monetary Policy Committee, my vote for the recent CBR would be an increase, specifically a 50-basis-point rise from the 9.75% November decision, and that I would maintain a tightening bias should the monetary aggregates continue their upward pace. That would raise the CBR to 10.25%, and believe me, it would be a surprise. With inflation subdued at 3.3%, growth at 6.3%, and projected to be higher this year, the only worrying statistic is the growth in the quantity of money, which could jeopardize this nice-looking economic outlook. We will turn to the monetary aggregates a little later.

The Governor, Dr. Michael Atingi-Ego, read the MPC’s decision to maintain the CBR at 9.75%. He read, “On 9 February 2026, the Monetary Policy Committee, MPC, of the Bank of Uganda, BOU, maintained the Central Bank Rate, CBR, at 9.75%. The Committee assessed that the prevailing policy stance remains appropriate to support economic activity while ensuring that inflation stabilizes around the target over the medium term to long term amid persistent global economic uncertainty.” I shouldn’t be bothered, as a monetarist-leaning economist, with how and where the Bank of Uganda sets its CBR, as it is an ineffective tool. But I do bother for two reasons. It is one very important tool in central banking, and all tools should be geared toward controlling the stock of money.

The MPC decision wasn’t in any way a surprise. In response to my LinkedIn post, Professor John Hearn, an economist, author, and professor of economics, banking, and finance, said he hoped the Bank of Uganda would listen to my vote. I didn’t think the Bank of Uganda was anywhere close to adopting a vote like mine. My response read, “Hopefully, though I think they aren’t yet setting their policies with a keen eye on the growth of money. Likely they’ll differ, as they’ll observe that current inflation is within target and growth projections are well on course, too. If they do observe the current trend in money supply growth, they’ll then listen to my vote.” And it turned out exactly as I thought. The Governor explained, “The Committee assessed that the prevailing policy stance remains appropriate to support economic activity while ensuring that inflation stabilizes around the target over the medium term to long term amid persistent global economic uncertainty.”

Controlling money growth by pursuing preemptive tightening when monetary aggregates deviate sharply upward, regardless of lagged inflation readings, is very helpful in preventing inflationary spirals. If we wait until we see inflation rise to control monetary aggregates, it will be too late, as inflation is caused by prior monetary overhang. When Hakim Wampamba, a journalist from NBS Television, raised concerns about the growth in the quantity of money, the Governor laughed off the concern as an allegation. The Executive Director, Research, Dr. Adam Mugume, responded, “On monetary aggregates growth, that should really not be an issue.” He went on to explain that in 2025, monetary aggregates had contracted, growing at about 8%-9%. He said, which I agree with, that monetary aggregates should grow in the range of 12%-13%. I think the explanation for last year’s monetary aggregates doesn’t align with the Bank of Uganda’s data. The broad money annualized growth rate averaged about 10% over the nine months ending September 2025 and was much higher in the last three months, ending December 2025, growing at an annualized average rate of 17%.

For most of 2025, the data doesn’t show a worrying contraction in the quantity of money, broadly defined, since 10% is within the +2/-2 band. However, the average over the last three months threatens the good economic outlook and therefore calls for commitment to reining in growth toward the 12%-13% that Dr. Adam Mugume mentioned earlier. Will that happen? Maybe, but as for me, I have convinced myself that it will not happen. The Governor, too, shared the same opinion with the Executive Director, saying, “And like Adam has mentioned, whatever aggregates that you are seeing are consistent with the broad objectives of government, of growth of about six percent, with inflation of about five percent. So, everything, the way we see it from the central bank perspective is consistent with the broader macroeconomic objectives.”

Figure 1 shows the recent trend in broad money growth for Uganda since 2023, based on my own calculations using Bank of Uganda data. The last months of 2025 are clearly an outlier.

Figure 1: Recent trends in Uganda's money growth

As I conclude, I must commend the Bank of Uganda’s very noticeable efforts, particularly those of the Research team. However, in both my monetarist analysis of Uganda’s policy response during COVID-19 and across my engagements, I continue to emphasize how dangerous a discretionary monetary policy approach can be. I should repeat Milton Friedman’s claim that the money supply should grow at a slower-than-average rate during business expansions and at a higher-than-average rate during contractions. I should also emphasize that monetary policy requires relentless focus on the quantity of money, not just the price of credit. The quantity of money is the leading indicator, not inflation; by the time we observe inflation, there is a prior monetary overhang we didn’t deal with swiftly. It is a huge gamble whether the monetary aggregates continue their upward pace or persist at current levels.