Banks not heeding to my advice-BoU Governor

FILE PHOTO: BoU Governor Mutebile

Kampala, Uganda | THE INDEPENDENT | Bank of Uganda Governor Emmanuel Tumusiime-Mutebile has said that commercial banks have flatly refused to take his advice as regards to reducing interest rates.

Mutebile, who was reading the February monetary policy statement on Thursday, said very few banks have taken his advice but he continues to struggle with most of them so that they can reduce lending rates for Ugandans.

Bank of Uganda has for over the past year kept the Central bank rate (CBR), a signal rate that tells banks whether the economy outlook is good and therefore they lend cheaply too, low and now at 9%.

The commercial banks are expected to follow suit by reducing their interest rates to enable more people to borrow and invest. However, they have refused to do so, keeping their lending rates at the average 20%. This is out of the reach of many Ugandans, meaning many can hardly access finance to invest.

This has been a lot of people’s complaint that BoU’s policy rates, that are supposed to translate into lower borrowing rates, were having less impact. The governor’s admission that they are not taking his advice indicates that either banks don’t trust BoU’s assessments of the economy or the environment simply doesn’t favour reduction in rates.

Mutebile said that whatever the Central Bank puts out is absolutely true and the banks should be taking its advice.

Meanwhile, Mutebile said he expected the economy to grow at a rate between 5.5% and 6% in the 2019/2020 financial year, below the growth, it posted in 2018/19. It is, however, in line with projections from other entities.

He said growth will be affected by the fact that Uganda’s exports have not grown fast.

Adam Mugume, the executive director research at BoU, said apart from gold, all the other things Uganda exports have fallen.

Mutebile said the coronavirus in China and desert locusts reported in northeastern Uganda are also likely to affect the economy although he can’t tell how big the impact will be now.

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