Mutebile Cautions On Low CBR, Interest Rates

1747 Views Kampala, Uganda

In short
Governor Mutebile says he cannot tell banks to reduce interest rates in line with the reduced central bank rate, adding that the reduction is an indicator to them to consider reducing interest rates.

The Governor of the Bank of Uganda, Emmanuel Tumusiime-Mutebile, says with the reduction in Central Bank Rate (CBR) he cannot force commercial banks to also reduce interest rates on loans.
 
Mutebile says in a free market economy interest rates should be left to the forces of demand and supply.
 
The Bank of Uganda (BoU) today reduced the CBR, the benchmark lending rate which determines interest rates from 15 percent to 14 percent.
 
The implication is that banks will borrow from the BoU and from each other at reduced rates, meaning they should also lend to private borrowers at lower rates than before.
 
But Governor Mutebile says he cannot tell banks to reduce interest rates in line with the reduced CBR, adding that the reduction is an indicator to them to consider reducing interest rates.
 
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According to Mutebile, normally banks reduce interest rates but there is a time-lag before they do so. He says he hopes the politicians and the public will continue to pile pressure on banks to reduce interest rates now hovering between 25 and 30 percent.
 
In neighbouring Kenya, the central bank has warned banks against keeping interest rates high as the CBR falls.
 
But Mutebile says in a free market economy it is better to leave interest rates ti the forces of demand and supply.
 
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For the third consecutive time the BoU has been reducing the CBR with banks not reducing interest rates, reducing by smaller margins or delaying the reduction.
 
Several borrowers are also finding it difficult to repay their loans, with non-performing loans hitting the mark of 1.8 trillion Shillings in 2016.
 
Herman Kasekende, the Chief Executive Officer of Standard Chartered Bank Uganda, says other factors that force banks not reduce interest rates drastically include, among others, risks of non-compliance, non-repayment and poor saving culture of Ugandans.
 
Meanwhile, Mutebile also says the reduced CBR and subsequent reduced interest rates, if any, will apply to new loans and not older ones which will have to be repaid based on old repayment agreements.
 
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The import is that if you borrowed a loan at 30 percent interest rate you will still have to repay it at 30 percent interest rate.

Andrew Asasira, Standard Chartered Bank's Executive Director for Corporate and Institutional Banking, says low interest rates are good for banks if it were not for the other risks.
 
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President Yoweri Museveni recently said lowering the interest rates is one of his priority areas.
 
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About the author

David Rupiny
In his own words, David Rupiny says, "I am literally a self-trained journalist with over 12 years of experience. Add the formative, student days then I can trace my journalism roots to 1988 when as a fresher in Ordinary Level I used to report for The Giraffe News at St Aloysius College Nyapea in northern Uganda.


In addition to URN for which I have worked for five years now, I have had stints at Radio Paidha, Radio Pacis, Nile FM and KFM. I have also contributed stories for The Crusader, The New Vision and The Monitor. I have also been a contributor for international news organisations like the BBC and Institute for War and Peace Reporting. I am also a local stringer for Radio Netherlands Worldwide.


I am also a media entrepreneur. I founded The West Niler newspaper and now runs Rainbow Media Corporation (Rainbow Radio 88.2 FM in Nebbi). My areas of interest are conflict and peacebuilding, business, climate change, health and children and young people, among others."