This study sought to empirically investigate the impact of monetary policy on the economic growth in Uganda during the period 1985-2013. The variables analysed were real gross domestic product, real interest rates, real effective exchange rates and inflation. The empirical analysis used a Vector Autoregressive (VAR) model as well as other techniques in order to obtain meaningful results. Using the Johansen technique, the empirical findings revealed that all the variables share a long run relationship. Further, real interest rates, real effective exchange rates and inflation have a negative effect on economic growth in the long run. The results further revealed that in a ten-year period, the variations in real GDP can be explained by its own innovations followed by real interest rates but real effective exchange rates and inflation however have minimal effects on real GDP. The findings of the impulse response test reiterated the VECM results showing that real interest rates and real effective exchange rate have a negative impact on economic growth in the first three years and the effect dies out after the fifth year. On the other hand, inflation rate has a marginal positive effect on economic growth in the first three years after which the effect becomes negative and wanes off after the sixth year. Uganda uses an Inflation Targeting Lite monetary framework that is based mainly on the use of interest rates to curb inflation. However, this study revealed that the use of interest rates as a policy tool to combat inflation results in a negative bearing on growth. It is on these grounds that this dissertation recommends a gradual policy shift from exclusive use of inflation targeting. Policy makers should thus consider using exchange rate targeting. Mishkin (2013) states that having a credible exchange rate target helps a country to anchor inflation to the expectations of the inflation rate in the economy because it ties the inflation rate of internationally traded goods to those of the country. This would be beneficial to Uganda which is a land locked country that relies heavily on imported products especially petroleum products and fuel whose prices fluctuate from time to time. In addition, exchange rate targeting is effective in reducing inflation quickly especially in emerging economies like Uganda. However, policy makers should be mindful that using exchange rate targeting can make a country prone to speculative attacks on their currencies which could devalue a country’s currency thus leading to a decline in economic growth. It is prudent therefore to apply these policies with a degree of caution.