Bank of Uganda policy framework questionable

Bank of Uganda (BoU) raising policy rates gave justification to commercial banks to increase their lending rates without any restrictions. 

Clients, for example, who had taken a rational decision to take a loan pre-2011 and had judged their ability to pay it back with interest in installments of Ushs. 100,000 per month were rendered to have instead taken suicidal decisions. Bankers increased interest amounts on loans, and so their repayment installments were revised upward to Ushs. 200,000; a one hundred percent increase!

While, in 2013, commercial banks reduced their lending rates, it seems that none have reduced them back to the original rates pre-2011. This status quo does not facilitate improvement in the food security situation of Ugandans. The purchasing power of Ugandans continues diminished.

One is still unable to purchase sugar for even though the price has lowered, one has to put more money in paying back loans. Food stalls are laden with food, but many cannot afford it. We have moved full circle and we are back to the same point when food inflation rates soared!

  • Did the BoU, in taking the decision to raise rates, factor in the possible negative consequences that may occur from such a decision?
  • Did it stipulate possible antidotes to such consequences? 
  • Now that the ‘unintended’ consequences are with us, does the BoU have a role to play in ameliorating them?

These and many more questions are begging answers.

Post featured photo credit: Emmanuel Owaraga

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