Bank of Uganda BoU Governor Emmanuel Tumusiime-Mutebile has said that the central bank has been and continues to persuade commercial banks to lower interest rates. Mutebile says for the last three years BoU has been reducing Central bank Rate CBR but commercial banks have not moved in tandem with central bank in reducing interest rates.
Mutebile says for the last three years BoU has been reducing Central bank Rate (CBR) but commercial banks have not moved in tandem with central bank in reducing interest rates.
For instance, Mutebile says the central bank has reduced CBR from 17 to 9.5 percent but commercial banks have only reduced their rates by only a five percent margin. He described the commercial banks' response to central bank rate reduction as marginal.
Mutebile says the central bank has turned to moral suasion hoping to convince commercial banks to reduce interest rates. Moral suasion is when a central bank uses persuasion rather than regulatory coercion to convince financial sector players to take a particular course of action.
Every month, Mutebile says he meets commercial bank officials and informs them what could be political consequences of their failure to lower interest rates. Mutebile says politicians can decide to slap a cap on interest rates like what Kenya did in 2016. The Central Bank of Kenya last year capped commercial bank interest rate at 14.5 per cent.
However, Mutebile says the Bank of Uganda doesn't believe that capping of interest rates would be of help. He says market forces should be left to determine interest rates.
He explained that all interest rates in Uganda, just like all other market instruments, are market determined with no formal controls, adding that the only instrument the bank has is the Central Bank Rate.
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Mutebile made the remarks today, Friday, while responding to questions from the Africa Peer Review Mechanism (APRM) members who are in Uganda for the country's second assessment.
APRM is a continental voluntary self-monitoring instrument established in 2003 by the New Partnership for Africa (NEPAD) Heads of State and Government Implementation Committee (HSGIC) as tool for monitoring performance in governance among Member States.
The Mechanism's primary objective is to foster the adoption of policies, values, standards and practices of political and economic governance that lead to political stability, accelerated sub-regional and continental economic integration, economic growth and sustainable development.
Mozambican Anglican Bishop, Dinis Salomão Sengulane, a panel member of the APRM Eminent Persons, is leading a team of experts who are carrying out Uganda's second peer review.