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(Ecofin Agency) - Commercial banks operating in Uganda announced they will lower their interest rates on loans to businesses and individuals in the coming days. The announcement comes after Emmanuel Tumusiime-Mutebile, the governor of the Bank of Uganda (BOU), threatened to cap on the banks’ rates.

 

A few days ago, he denounced the discrepancy between the monetary decisions of the Central Bank and the lending policies implemented by commercial banks. While in recent years, the BOU has continued to lower its benchmark rate to reduce the cost of credit and facilitate consumer access to loans, commercial bank interest rates have not seen a real decrease.

According to Governor Mutebile, despite the reduction by 200 basis points (to 7%) in the central bank’s rate between April and June 2020 to mitigate the effects of the COVID-19 pandemic on the economy, the banking industry's weighted average lending rate fell from 17.7% in April to 18.8% in May.

 

“Since BOU has aggressively eased monetary policy to reduce the cost of credit, lending interest rates should be reduced to levels that are consistent with the current monetary policy stance [...] Given commercial banks' reluctance to heed this call, BOU may take redress to section 39 (1) (d) of the Bank of Uganda Act (2000),” Mutebile said.

 

This provision allows the Central Bank of Uganda to set, in consultation with the Minister of Finance, the minimum and maximum interest rates applicable by financial institutions.

 

According to the Ugandan Bankers Association, the commercial banks “have heeded the call of the governor” of the central bank and promise to reduce their interest rates within the next 30 days.

 

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