20120112
Reuters
KAMPALA (Reuters) - Traders and shopkeepers in the Ugandan capital Kampala closed on Wednesday for a three-day strike to try to press commercial banks to stop raising interest rates, a demand dismissed by the bankers' association as impossible.

Business owners in east Africa's third largest economy have been griping for months about hikes in interest rates on their bank loans, which they say are crippling their businesses.

"I am furious at these thieving banks. All they care about is squeezing as much as possible from us," said Abdu Nkonge, a textiles shopkeeper told Reuters as he stood outside his shop, with traders milling idly outside padlocked malls, the usual mayhem of central Kampala's streets hushed.

"What if our businesses collapse from these high interest rates? Who will bank with them, where will they get deposits?"

Banks began raising their rates soon after Uganda's central bank, Bank of Uganda, started hiking its benchmark rate in August to curb rampant inflation.

The bank raised the Central Bank Rate, launched in July last year at 13 percent, for four consecutive months before it paused at 23 percent in December.

Uganda was rattled by a series of violent opposition-led protests last year over the soaring cost of living after inflation rose sharply, driven by high food prices.

However, the price pressures started easing in November, with inflation declining to 29 percent after hitting an 18-year high of 30.4 percent in October year-on-year. It eased again in December to 27 percent on the back of a slowdown in food prices.

COST OF MONEY

"We made our call to members to close their shops for three days so that these banks can listen to us," Issa Sekito, spokesman for Kampala Capital City Traders Association, said.

"And we're thrilled that the response has been massive and even traders from many other towns have joined us. This theft by banks must stop."

A Reuters witness said shops in the capital's central business district selling goods ranging from electronics, textiles, building materials, travel goods to motor vehicle parts, as well as fast food eateries, were closed.

The Uganda Bankers' Association chairman, Emmanuel Turyamuhika, said the banking industry's average prime lending rate stood at between 28-29 percent, from 18-19 percent in July last year.

"It's impossible, no bank will revise its interest rates downwards because we trade in money and the cost of money has gone up," he said.

"Traders are asking why we're hiking interest on old loans but it's obvious that's a replacement cost otherwise if we only raised interest on new loans we would not be able to secure fresh capital for new loans."

He said banks could consider cutting interest rates if the central bank reduced its rate.

A series of meetings between traders, government officials and the banks have been fruitless.

Although the central bank has said it expects inflation to continue on a downward path in 2012, it has not signalled when it will start loosening its tight policy stance.

Some analysts say it might start loosening around the end of the first quarter 2012 when inflation is expected to have declined substantially.