Recently, Bank of Uganda’s benchmark Central Bank Rate (CBR) was slashed by 200 basis points to 7%, the lowest ever, between April and June, to signal to lower interest rates so as to support growth.
Commercial banks say they will heed Bank of Uganda's (BoU) call to lower interest rates over the next month.
This comes after Governor Emmanuel Tumusiime-Mutebile warned of fixing lending rates after banks raised loan rates against the Central Banks signal to support economic growth.
"We agreed that each and every member institution goes back and reviews their internal position and adjust their lending rates accordingly based on what on what they can accommodate since institutions differ in composition and makeup of their cost structures, assets, and liabilities," Mathias Katamba, the dfcu bank, and Uganda Bankers Association (UBA) chairman said.
He made the comments in a statement after the bankers' monthly meeting. Katamba also said that the banking industry was going to engage the Bank of Uganda and the ministry of finance over what they termed as "pain points" that have affected the loan pricing of Uganda's banks.
The latest Stanbic Purchase Managers Index (PMI) report indicated that economic activity has contracted due to the coronavirus lockdown.
The survey showed that companies reported difficulties in paying staff in June and this led to job cuts and a reduction in salaries across the board.
Even though the central bank has been slashing its benchmark Central Bank Rate (CBR), rates have only marginally moved from 24.7% for shilling loans in the three months to April 2016 to early 2020.
Central Bank data indicates that in January 2020, Centenary's best (prime) rate was 21%, Cairo 23%, Equity 22%, Standard Chartered 19.3%, Stanbic 17.5%, Housing Finance 21%, dfcu 21%, and Absa 19.75%.
Recently, Bank of Uganda's benchmark Central Bank Rate (CBR) was slashed by 200 basis points to 7%, the lowest ever, between April and June, to signal to lower interest rates so as to support growth.
However, the weighted average industry lending rates instead rose to 18.8% in May from 17.7% in April against BoU's signal for a reduction.
Stanbic bank recently slashed their prime rate to 16% from 16.5% to heed the Central Banks signal.