Uganda downplayed the possibility of regulating commercial bank interest rates after East Africa’s Economic giant Kenya set a precedent last week.
The country’s Prime Minister Ruhakana Rugunda said that market forces will continue to be the major drivers of the interest rate.
Kenya president Uhuru Kenyatta assented to a Bill that caps interest rates to 4 per cent above the Central Bank Rate (CBR) set by the Central Bank of Kenya.
Daily Monitor reports that several Kampala based private sector players have urged the Yoweri Museveni government to intervene in the interest rates environment.
However, Rugunda said “The government has decided that market forces should take course in determining interest rates instead of the direct hand of the government. Of course, the government through the Central Bank is watching the situation, but we insist that the market should take charge,” he said.
The current level of interest rates is at an average of 22 per cent whereas the CBR set by Bank of Uganda (BoU) in August is 14 per cent.
Uganda Bank Governor Emmanuel Tumusiime Mutebile earlier said an upper threshold on lending rates would be counterproductive because banks will not lend to customers if they cannot expect to cover the costs of doing so and still make a profit.
“Hence capping interest rates will mean that the banks will not lend to the less creditworthy borrowers or those who require more costly evaluation and monitoring” Mutebile said.
In signing the Bill, president Kenyatta said: “Banks need to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by their customers.”
Source/ Daily Monitor