This archive report was first published on 9 July 2020.
Uganda's economy is facing unprecedented decline due to the COVID-19 pandemic, with economic activity plummeting due to lower demand, lower capital inflows, reduced productivity, and mass unemployment.
Despite the Bank of Uganda (BoU) cutting its Central Bank Rate by 200 basis points to an all-time low of seven percent between April and June, commercial banks have failed to reduce loan rates accordingly.
According to a letter from BoU Governor Emmanuel Tumusiime-Mutebile, dated July 7, the central bank is considering invoking a law that allows it to determine maximum and minimum rates that financial institutions may impose on credit extended in any form.
This move comes after neighboring Kenya capped lending rates for its commercial banks in 2016, but scrapped the policy last November after it was blamed for stalling lending to businesses.
Prof Tumusiime-Mutebile stated in the letter that the weighted average lending rate on loans rose to 18.8 percent in May from 17.7 percent in April, despite the economic downturn.
Implementing the cap would significantly hit revenues at commercial banks, whose leading local players include affiliates of Standard Chartered Bank and South Africa's Standard Bank.
The World Bank projects growth in Uganda's economy could slow 0.4 percent this year from 5.6 percent in 2019 due to the effects of the pandemic.
