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NSSF: lowered rate of central bank reduces savers’ earnings

National Social Security Fund has said the lowering of central bank rate (CBR) will heavily affect the amount of money savers are likely to earn this year, writes ALI TWAHA.

The CBR is a bench-mark rate Bank of Uganda uses to signal and influence the direction of interest rates that commercial banks charge borrowers. The lower the CBR, the lower the interest rates.

A lower CBR is expected to enable private sector to borrow, invest and push up economic growth. NSSF sees it as a risk, though. Richard Byarugaba, NSSF managing director, said last week that the pension fund might be forced to cut benefits for retirees as a result of central bank’s stance on the CBR.

“We had locked in a lot of instruments for the long term but certainly whatever we are re-investing today will be affected by the rates coming down and we believe that will definitely impact on our return that we will give to our members,” Byarugaba said.

NSSF MD Richard Byarugaba (L) and BOU governor Emmanuel Tumusiime-Mutebile

In the last ten months, BOU has reduced the CBR from 17 per cent to 10 per cent as of August 2017 in a bid to boost economic activity.

Lower CBR means earnings on government treasury bills and bonds will be much lower. NSSF, whose assets hit Shs 8tn, invests most of its money in fixed-income securities. Government securities – treasury bills and bonds – hold significant amount of NSSF’s money.

Byarugaba said: “We still invest in fixed-income securities, equities and real estate. You will have noticed that the fixed incomes side interest rates have been coming down which has affected the bonds [and treasury bills] especially at the central bank.”

Patrick Mweheire, Stanbic bank chief executive, said recently that commercial banks would not make as much money as they made in 2016, citing the decline in interest rates.

The Kenyan election process has presented fresh uncertainities to NSSF as stocks at the Nairobi Securities Exchange have lost significant value. NSSF has shares in Equity bank and Safaricom, which were listed there.

Byarugaba said: “Equities have been challenged largely from geo-political issues.”

He indicated the re-election process in the region’s biggest economy will affect all stock exchanges in the East African Community.


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