Uganda’s central bank raised its benchmark interest rate by the most in 15 years at an emergency meeting to defend the shilling, after it fell to a record low.

The monetary policy committee raised the rate to 12% from 9.75%, Governor Michael Atingi-Ego told reporters at a briefing. The rate had been held at 9.75% for eight consecutive meetings. The currency rallied, making it the world’s best performer on the day among those tracked by Bloomberg.

“This is intended to contain inflationary pressures, limit the second-round effects from higher energy prices and exchange depreciation and anchor inflationary expectations around the medium-term target,”Atingi-Ego said. “The global economic environment has changed significantly,” he said, citing inflation spillovers from the Iran war “necessitating a tight monetary policy stance.”The East African nation’s currency on Tuesday fell to its weakest level since Bloomberg began tracking it in 1993 before paring losses. The shilling extended gains after Wednesday’s rate hike, strengthening 1.95% to 4,061.75 per dollar by 2:06 p.m. in Kampala.

In answer to a question, the governor said that “the Bank of Uganda does not target an exchange rate. The exchange rate in Uganda remains market determined.”Investors have been retreating from riskier assets as the dollar strengthens and US bond yields rise. Uganda’s outsized selloff partly reflects its relatively thin foreign-exchange reserves and balance of payments. The country has about $6 billion in reserves, enough to cover 2.7 months of imports, according to the International Monetary Fund, compared with about 4.5 months for Ghana and Zambia.

The Bank of Uganda faced limited policy choices and the chances of selling dollars to support the currency were “near zero,” according to Stephen Kaboyo, managing director of Kampala-based asset manager Alpha Capital Partners.

Longtime ruler Yoweri Museveni also shut the door on the possibility of dollar sales and said he is “totally against” dipping into foreign-exchange reserves to prop up the shilling.

The Bank of Uganda was “therefore left with one main option of raising the policy rate aggressively,” said Kaboyo. The move is expected to boost local bond market returns and attract foreign exchange flows, helping to “increase currency demand and directly curb depreciation pressures,” he added.

Annual headline inflation in Uganda accelerated to 4.6% in September from 4.1% a month earlier, driven by elevated energy prices stemming from supply constraints linked to the Iran and Ukraine wars.

The governor said that local currency weakness and elevated oil prices were fanning domestic fuel prices, and that the risks to inflation remain tilted upwards.

Wednesday’s emergency meeting came between the MPC’s scheduled Aug. 13 and Nov. 12 sittings and was attended virtually by more than a 100 people including bankers and journalists.

The Ugandan central bank previously held a special MPC meeting in 2024, when it sought to support the shilling by hiking rates after the World Bank suspended funding to the East African nation over legislation that criminalized homosexuality.