Traders are not happy with the modest interest rate cuts by commercial banks over the past week, following a one-point reduction of the Central Bank’s indicative lending rate (CBR) at the beginning of the month.
Arguing that a one-point reduction would have little effect on business, Everest Kayondo, chairman of Kampala City traders Association (KACITA) said they would decide what to do after meeting their members.
“Inflation has dropped by about 5 percentage points for the last three months. Why reduce the CBR by just one point?” asked Kayondo.
“We haven’t thought of another strike but we have our idea which I don’t want to pre-empt,” Kayondo told The Independent.
Central Bank Governor Emmanuel Tumusiime Mutebile on February 1 dropped the CBR, the rate at which commercial banks borrow from the central bank, from 23 to 22 percent.
“Because of a reduction in inflation, a very cautious easing of the monetary policy stance is now warranted,” he said. “This will dampen demand side pressures especially on non-food inflation.”
Commercial Banks responded by dropping interest rates by similar margins. Stanbic Bank cut its prime lending rate by one point from 29.5% to 28.5%.
“The new rates will apply for both old and new loans,” Stanbic’s Director of Communications, Daniel Nsibambi, said.
Standard Chartered Bank cut its rate from 28.5% to 27.5%. DFCU reduced its lending rate from 27 to 25.5 percent, and Centenary Bank’s Managing Director Fabian Kasi said they would leave theirs unchanged at 23% - still one of the lowest in the industry.
KCB dropped to 27% from 28%, for new and old customers. Other banks were expected follow suit.
The rate reductions were expected as the banking industry – particularly the Central Bank - was eager to calm the social and economic unrest that ignited into a 3-day traders’ strike, protesting the increase of rates on old loans and putting them out of business.
But the governor, who at the height of the strike promised traders he would reduce rates this month, said his action had nothing to do with them. “The reduction in the CBR is not in any way related to the traders’ strike. It is only related to declining headline inflation,” the governor said, adding that his only response to traders unsatisfied with the one-point drop of the CBR was “sorry”.
But he was optimistic.
“The bank is now confident that inflation will be reduced to single digits by the end of 2012,” Mutebile said.
Annual headline inflation for the year ending January 2012 was reported to have dropped to 25.7% , down from 27% in December.
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written by Michael Kors, February 17, 2012
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