Gov’t Won’t Cap Interest Rates, Market Should Determine Credit Cost – Finance Minister

Government has Tuesday reiterated its position that it will not cap lending rates for commercial banks despite recent opposing proposals from sections of the public and civil society.

The debate was triggered months ago following Kenya’s decision to enact a law that limits commercial banks to lend not beyond a 10% threshold.

During a breakfast meeting by the Uganda Bankers Association at Kampala Serena Hotel, cheapest Finance Minister Matia Kasaija said; “In line with the cost of credit, government is of the view that interest rates be determined by the market. I and the Governor Bank of Uganda have received a lot of pressure during the course bailout debate saying money is expensive and that we should put a cap.”

“Money is a tradable commodity. If you tell me to put a cap on interest rates, it’s the same thing as telling me to put a cap on the price of sugar. It will be unfair to the traders who incur costs in bringing the sugar here.”

Bank of Uganda which is the regulator of all commercial banks recently gave similar position, opposing the idea of capping.

Deputy Governor Louis Kasekende noted at a press conference last week that; “I don’t think we should carbon copy everything that Kenya does. Our objective for monetary policy is clear; to increase the depth and intermediation in the financial sector by reaching small borrowers and to increase long term savings.”

“Capping of interest rates doesn’t guarantee that our objective will be attained,” Kasekende added.

The Finance Minister argues that even Kenya which chose to cap, it hasn’t been a smooth sail citing a recent discussion he had with the Kenyan Finance Minister.


“I know I am being criticized in the Cabinet but I have put my foot down because in a modern economy, the price should be determined by the forces of demand and supply,” Kasaija said.

He however gave assurance that government will implement fiscal and monetary policies that prevent a significant rise in interest rates. This includes; curbing inflation, living within our budget, compliance in revenue collection, limiting government borrowing in the financial market.

The Minister also stressed that government will strengthen consumer protection measures to avoid misconduct by some of the commercial banks.

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