Bank of Tanzania to start setting interest rates moving away from market determined process

BoT out to stabilise interest rates

The Bank of Tanzania (BoT) is set to introduce the central bank rate (CBR) under the interest rate-based monetary policy framework in the coming financial year to stabilize interest rates.

This was revealed in the recently released monetary policy statement for June 2018 to be implemented from the next financial year.

Although interest rates will continue to be market determined, the central bank will set CBR to, “guide short-term inter-bank lending rates, thereby influencing the marginal 40 cost of funds for commercial banks”.

The report further noted that, “the Bank will continue to promote efficiency and transparency in the inter-bank cash market, which is a key avenue for transmitting monetary policy actions”.

In the previous financial year from July to April the overall lending rates for banks was averaging 17.78 per cent while the overall deposit rate was 9.52 per cent.

Lending rate was higher on December 2017 averaging 18.4 per cent. The increase in lending rates was partly associated with the rise in risk premium due to weakening of banks’ asset quality following increase in non-performing loans.

The lower lending rate was in February averaging 17.3 per cent in responding to the ease monetary policy stance by BoT albeit with a lag.

The statement shows that deposit rates was higher in on July 2017 averaging 10.55 per cent and it kept on decreasing until it a reached a lowest point 8.57 in March this year.

Specifically, one-year lending rate for ten months from July 2017 to April 2018 was averaged 18.4 per cent while the 12-month deposits rate was averaged at 11.3 per cent in that period.

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