KIU, Western Campus - Central banks in East Africa have been cutting interest rates to encourage businesses to borrow, but the strategy is not working, according to a BBC report.

Kenya and Uganda have reduced their benchmark rates to 7% and Rwanda's central bank has pushed its key lending rate down to 4.5%.

But between March and April, the value of loans issued by banks in Uganda fell more than two thirds to $132,000 (around 488 million shillings).

President Yoweri Museveni issued an order to banks not to charge interest on loans during the lockdown period but according to the BBC report, this has not worked.

With economies all over the world being hit hard by lockdowns imposed by governments to combat COVID-19, people, especially in Uganda, are reluctant to borrow money, as market for most products has hit rock bottom.

Central banks have cut interest rates, to make borrowing cheaper, hoping to encourage people to buy various goods, as well as convince entrepreneurs to take out a loan, to make investments that would boost the economy.

There have been increasing calls for governments to put in place stimulus packages to give economies a jump start when business finally returns to normal.

Some governments like those of India, Australia and Germany have announced stimulus packages worth billions of dollars but the Ugandan government is yet to announce any clear stimulus package and time will tell whether banks will weather the economic storm that has come with the COVID-19 pandemic.

Picture credit: The East African