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How Government plans to bring down interest rates

By John Masaba

Added 22nd December 2016 01:16 PM

"If you don't want to budge, we shall create a facility that will compete with you. It is a smart way," said Finance minister Matia Kasaija.

How Government plans to bring down interest rates

Finance minister Matia Kasaija

"If you don't want to budge, we shall create a facility that will compete with you. It is a smart way," said Finance minister Matia Kasaija.

Rather than hounding commercial banks to forcefully bring lending rates down, the government will strengthen Uganda Development Bank (UDB) to compete with commercial banks and force them to reduce lending rates voluntarily.

 "If you don't want to budge, we shall create a facility that will compete with you. It is a smart way," said Finance minister Matia Kasaija.

Despite Bank of Uganda reducing CBR (Central Bank Rate) over the last several months, many commercial banks are reluctant to bring down their lending rates down, creating desperation among Ugandans, especially those in the business community.

Some people argue that Uganda should take cue from Kenyan government which has demonstrated that it is possible to bring down rates if lending institutions are reluctant.

In Kenya, commercial banks cannot now charge more than 4% above the CBR — the rate at which central Bank lends to commercial banks — after the President Uhuru Kenyatta in August signed a bill capping bank interest rates.

Addressing journalists yesterday, Kasaija said, however, that Uganda cannot follow the Kenya's example because Uganda prefers to let market forces to determine lending rates.

"Money is a commodity like potatoes. If we can't put a cap on the price at which you sell your bag of potatoes, why should we with lending rates," he said.   

He said he understands why banks are reluctant to reduce lending rate, saying many are saddled by operational problems resulting from reduced profitability because of high non-performing loans.  

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