Uganda central bank threatens to cap interest rates

Uganda's central bank is threatening to put a cap on interest rates charged by commercial banks.

This comes amid frustration that the cost of getting a loan for businesses, or consumers, remains high - deterring entrepreneurs from borrowing money to invest in expanding a business to create more jobs.

In April, the Bank of Uganda cut its benchmark rate to 8% and then to 7% in June, hoping banks would take advantage of access to cheaper funds to lend more to businesses at lower rates.

However, between April and June, the average interest rate charged by banks on loans has ranged between 17% and almost 19%, significantly above the central bank's benchmark.

It is a sign that banks want to protect profits from lending.

The central bank has warned the financial industry that it is ready to take advantage of legislation that allows it to set minimum and maximum interest rates.

The Bank of Uganda has previously resisted demands to intervene, to set rates, saying the government should not control bank profit margins.

The financial sector insists the interest rates reflect high operating costs and the risk of defaults on repayments.