Impact of Interest Rates on the Investment Sector in Uganda

Abstract

This overall thrust of this study was to analyze the impact of interest rates on the investment levels of the country. Specifically, the study sought; (𝑖) to find out the trend of lending rates charged on the borrowers; (𝑖𝑖) find out the trend of interest rates on paid on deposits and (𝑖𝑖𝑖) to assess the influence of interest rates on the investment levels of the nationals in the country as an engine for economic development of the country. To operationalize these objectives, the study employed a univariate, bivariate and a multivariate to investigate the impact of interest rates on the investment position of the country. The procedure for estimation employed in this study was the ordinary least square (OLS) simple linear regression which revealed that domestic investment is predicted to increase by UGX 937.8876 billion with a unit increase in deposit rates and expected to fall by UGX 842.8478 billion given a unit increase in the lending rate. Interest rates on lending as captured by the study was found to be positive but weakly significant, implied that although important in determining the level of credit in the country, the higher interest rates on borrowing actually scares away borrowers from borrowing because most domestic investors in Uganda are actually borrowers, so higher interest rates would discourage the borrowers from reaching out to the commercial banks to access fund to invest which hampers capital accumulation and development in the country.