Regulatory Alerts2016-10-31
Interest rate determinants and the Ugandan banking story
The author critiques the Uganda Bankers Association's defense of high interest rates, arguing that the sector suffers from market failure due to the discredited cost-plus pricing model and a lack of responsiveness to the Central Bank Rate. The analysis highlights that the Bank of Uganda lacks independent monetary policy instruments, as it relies on government-issued Treasury bills rather than its own bonds, which prevents effective control over money supply and leads to mispriced debt. Addressing these structural distortions and the tension between fiscal and monetary authorities is presented as essential for improving the borrowing public's access to fair interest rates.
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