My verdict on the May 14, 2026 Monetary Policy Statement

Will the Bank of Uganda raise the CBR on May 14, 2026? If they do, will the reason be ‘the close of the Strait of Hormuz’ or a surge in money growth?

During the February 2026 sitting, I voted to raise the CBR by 50 basis points to 10.25%, with a bias toward further increases. This was because 9.75% is not restrictive enough in practice, despite appearing nominally high. The MPC instead voted to hold the CBR at 9.75%. Money supply continued to surge in both February and March, at 20.3%/yr and 17.8%/yr, respectively.

As the MPC prepares to meet on May 14, 2026, the Middle East Crisis continues to create global uncertainty, particularly in the energy sector. UBOS preliminary estimates show that Uganda’s economy expanded by 8.5% in the second quarter of FY2025/26, and inflation reported for April is 3%/yr, within BoU’s 5%/yr target. These developments make for a very interesting moment for the MPC this May.

Pairing rapid broad money growth (17.8-20.3%/yr) with strong real GDP growth is a clear signal of overheating in nominal demand and future inflationary pressures, even if current inflation remains low. Given the economy is already growing strongly and supply-side limits on real output (productivity, labor, capacity), rapid money growth may not be fully absorbed by higher real output but may instead spill into higher prices and/or unsustainable demand.

What is clear at this point is that lowering the CBR would be inappropriate and risks repeating past mistakes of ignoring monetary aggregates. The second clear message is that strong real growth reduces recession fears from tightening, allowing focus on the recent monetary overhang. A debatable point is to hold the CBR, hoping that money growth would moderate sharply, a risk I cannot take.

Therefore, preemptive tightening via the CBR (and close monitoring of money aggregates) is the most logical response to stabilize nominal demand and avoid higher future inflation. That will ensure a sustainable expansion of the Ugandan economy. Lastly, if I had a seat on the MPC, I would vote to raise the CBR by 25 basis points, from the current 9.75% to 10%, expecting money growth to gradually moderate in the coming quarters toward a 12-14% annual rate in late 2026 and into 2027.