The Ugandan Shilling posted a modest appreciation against the US Dollar ($) in May 2025, underpinned by sustained inflows from coffee exports, remittances, portfolio investments, and Non-Governmental Organizations (NGOs) activities.
This marginal strengthening, however, came amidst continued depreciation against major European currencies, while domestic interest rates showed mixed movements in response to both inflation control measures and increased government borrowing.
According to the Ministry of Finance’s Performance of the Economy Report for May 2025, the local unit appreciated by 0.4% against the US Dollar, recording an average mid-market rate of sh3,653.4/USD, improving from sh3,669.6/USD registered in April.
The strengthening was largely attributed to increased foreign exchange inflows and a weakening dollar in global markets driven by rising trade tensions, including fresh tariffs and retaliatory actions.
Despite this gain, the Ugandan Shilling depreciated against both the British Pound Sterling and the Euro. On average, the local currency weakened by 1.4% against the Pound and by 0.2% against the Euro during the same period, highlighting continued volatility across cross-currency markets.
Monetary Policy Holds Steady as Central Bank Eyes Price Stability
The Central Bank Rate (CBR) remained unchanged at 9.75% in May 2025, maintaining its position for the second consecutive month. The Bank of Uganda’s policy stance continues to strike a delicate balance between controlling inflation and supporting real sector growth.
The 9.75% benchmark rate aligns with the bank’s medium-term inflation target of 5%, while leaving room for economic recovery and transformation.
Lending Rates Ease, Driven by Corporate Credit Demand
In the credit markets, average lending rates for both domestic and foreign currency-denominated loans declined in April 2025, reflecting a shift in the credit risk environment and a growing appetite among lenders for high-quality borrowers.
For Shilling-denominated loans, the average weighted lending rate declined from 17.74% in March to 16.64% in April 2025. The drop is largely attributed to increased disbursements to prime corporate clients, particularly within the telecommunications sector, where borrowers are typically considered lower risk.
Meanwhile, foreign currency lending rates also edged down slightly, from 8.51% in March to 8.20% in April 2025. This moderation reflects increased liquidity in the forex loan market and a favorable external risk environment for hard currency loans.
Government Taps Domestic Market, Borrowing Tops Shs 4.4 Trillion
The government raised sh4.43 trillion through the issuance of Treasury securities in May 2025, leveraging both Treasury Bills and Bonds to meet its liquidity and refinancing needs. Out of the total amount raised, sh755.5 billion came from Treasury Bills, while sh3,673.8 billion was raised via Treasury Bonds.
Notably, sh2.42 trillion was allocated to refinance maturing securities, while the remaining sh2.008 trillion financed other items in the budget. The uptick in borrowing underlines the government’s rising domestic financing requirement, as fiscal pressures persist amid efforts to sustain infrastructure spending and social sector commitments.
Yields Rise Across Government Securities Amid Increased Demand
Market appetite for government paper remained robust, with all Treasury Bill auctions in May 2025 registering oversubscription, averaging a bid-to-cover ratio of 1.5. However, the yields across most maturities trended upward.
The 91-Day T-Bill yield rose sharply from 9.5% in April to 12.1% in May. The 364-Day T-Bill yield increased slightly from 15.1% to 15.4%. The 182-Day Bill yield, however, continued its downward trend, falling for the fourth month in a row to 12.7% from 12.8% in April.
On the Treasury Bond front, the government reopened its 3-year, 10-year, and 20-year tenors in the primary market. Yields increased to 16.5% for the 3-year bond, 17.5% for the 10-year bond, and 17.9% for the 20-year bond, compared to 16.2%, 17.1%, and 17.5%, respectively, in April.
In the private placement market, yields rose across all bond tenors, reflecting investor demand for higher returns amid rising inflationary expectations and elevated government financing needs. The 20-year private bond yield hit 18.2%, up from 17.5% in April.
Private Sector Credit Expands on Agriculture, Transport, and Manufacturing Growth
The stock of outstanding private sector credit grew by 0.8%, rising from sh26.16 trillion in March to sh26.38 trillion in April 2025. This marks a continued upward trend in private credit growth, signaling recovering demand across several key sectors.
The rise was driven by increased disbursements to agriculture, manufacturing, and transport and communication sectors. Of the total credit stock, Sh6.765 trillion was in foreign currency while Sh16.756 trillion was Shilling-denominated.
Credit Approval Rate Climbs to 75.4% as Personal Loans Dominate
In April 2025, banks approved sh1.547 trillion in new credit, out of total applications worth sh2.051trillion, translating to a 75.4% approval rate, a significant jump from 48.6% in March. Personal and household loans led in disbursements, taking 31.5% (sh487.4 billion) of the total approved credit.
 Other notable segments included business, community, and social services at 17.4% (sh269.4 billion), manufacturing at 13.4% (sh208.1 billion), trade at 11.3% (sh174.4 billion), and agriculture at 10.8% (sh167.9 billion).
Looking ahead, exchange rate stability and rising investor demand for government securities are expected to support fiscal operations and market liquidity. However, upward pressure on yields and continued borrowing needs may tighten financial conditions.
Meanwhile, rising private credit growth suggests increasing business confidence and a gradual return to pre-shock lending levels. The Ministry of Finance’s report offers cautious optimism: while Uganda navigates inflation, global uncertainties, and public financing needs, the steady movement in credit, exchange rates, and yields paints a picture of resilience within the domestic financial landscape.
