Banks Lower Interest Rates After Central Bank Rate Cut

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Commercial Banks have reduced their prime lending interest rates on shilling denominated loans following the recent downward revision of the central bank rate to 6.5% from 7%.

A prime lending rate is the interest rate that banks offer their most creditworthy customers. The central bank rate is the rate at which financial institutions borrow money from the Bank of Uganda. 

“We hereby inform you (customers) that our Prime Lending Rate will reduce from 20% to 19.5% effective August 10, 2021. This change will affect both old and new Uganda Shillings credit facilities,” Centenary Bank said in a notice to customers.

Absa Bank said: “Effective Sunday, August 1, 2021, our UGX prime lending rates will reduce from 17.00% to 16.50%.”

The planned reduction in lending rates will mark some of the lowest interest rates charged by banks in the sector.

There are concerns that the high lending rates are a deterrent to increased access to credit and could dampen economic activity amidst the coronavirus pandemic.

Lending interest rates in Uganda have averaged 21% since the early 1990s according to information from the central bank. As at end of 2019 and 2020, lending rates averaged 19.9% and 19.1%, respectively.

The main driver of lending interest rates is overhead costs according to bankers, which are partly dependent on the size of the bank and the type of clientele.

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At the June Monetary Policy briefing, Central Bank Governor Emmanuel Tumusiime Mutebile said that: “The monetary policy committee assessed that the risks to the economic growth outlook are still on the downside, that there remains considerable excess capacity in the economy, sectoral unevenness of economic recovery, and a weak level of business investment.

“Therefore, the economic recovery continues to require monetary policy support until economic slack is absorbed so that the 5% inflation target is sustainably achieved.”

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