THE Bank of Tanzania (BoT) is still working on adoption of interest rate based monetary framework and forecasting migration from reserve money towards the end of the year.
BoT’s Director of Banking Supervision
Kened Nyoni told the `Daily News' that they were still addressing key
issues before announcing the exact date for adopting interest rate based
monetary policy framework. He said they were sorting out some issues
before making an interbank cash market a real market.
“This is whereby all banks will be in a
position to see who is offering liquidity and who is in need of
liquidity with respective terms clear as what is currently happening in
Reuters for interbank foreign exchange market,” Mr Nyoni said.
“There is commitment to adopt it in the
near future possibly towards the end of 2017 but not before the end of
2018.” Once these interventions including capacity building on forward
looking framework— Forecasting and Policy Analysis System (FPAS) are set
then the interest rate based framework will be adopted. The Bank [BoT]
is progressing well on developing FPAS for Tanzania, Mr Nyoni said.
International Monetary Fund (IMF) said
in latest letter of intent that the intention to move to an interest
ratebased monetary framework was welcomed.
The IMF, however, suggested acceleration
on the key reforms to put in place, such as a forward-looking monetary
policy framework and modernize monetary operations. Key issues include
integrating the forecasting and policy analysis capacity— which is being
developed with Fund technical assistance— into the monetary policy
formulation process.
Others are reforms that improve the
functioning of domestic financial markets; expanding the range of
eligible collateral used in the BoT’s operations; and improving
coordination with fiscal policy. The central bank, once interest rate
policy is in place, will issue a rate which acts as the benchmark for
prices of various money market products in the economy.
All players will use BoT’s rate to peg
prices of their products. Economists have it that although reserve money
works well, its effectiveness is impeded when the economy expands,
making interest rate targeting more preferable.
BoT's preparations for migrating from
reserve money to interest rate target are dated four years ago in 2013.
However its implementation proved to be a tough nut to crack.
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