This study determines the existence and drivers of the asymmetrical response of lending rates to policy rate changes in Uganda’s banking sector. Uganda’s banking system seems to be faced with sticky adjustments of lending rates following changes in policy rates. Whereas interbank money-market rates have tended to track the evolution of the policy rate, bank lending rates have been stickier, only responding partially to changes in the policy rate, with lags. These lag periods appear to be longer when the policy rate is reduced than when it is raised, which has created challenges for monetary policy implementation. The analysis is based on bank-level data covering 17 commercial banks for the period 2009–2017. The econometric approach is based on panel error-correction methods. Results show that downward stickiness exists in bank-level lending rates. The factors identified as causing the asymmetrical response of interest rates to policy rates include: risk, cost, bank capability, banking sector concentration and government borrowing. These results provide new insights necessary for the design of appropriate policy measures to reduce high and sticky lending rates in order to, among other things, reduce the cost of finance and ensure effective implementation of monetary policy. In particular, the study recommends policies that improve cost efficiency, reduce government borrowing and support mostly small and indigenous banks to compete and penetrate the market, as well as measures towards minimizing credit risks that could help to achieve symmetric adjustment.