Bank of Tanzania headquarters in Dar es Salaam. FILE PHOTO | NMG
The Bank of Tanzania (BoT) has said it has no plans to regulate interest rates of commercial banks as was earlier reported.
What
is in the offing, the BoT said in a statement Tuesday, is “shifting
from using aggregate monetary targeting” to interest rate, also called
price policy, to set the monetary policy.
Preparations
for using rates to set monetary policy started long ago and the plan is
to use a fully-fledged interest-rate-based framework by March next year.
Currently,
the BoT uses a range of tools to set monetary policy that include
liquidity control and intervention in the foreign exchange markets.
The
BoT has also been using target minimum reserve requirements of
commercial banks and using its discount rate to set monetary policy.
First announcement
The BoT first announced plans to change the manner of setting monetary policy in 2014.
Outgoing
BoT governor Prof Benno Ndulu was quoted in the past as saying the
shift towards interest-based-framework was meant to be done gradually
“in a transition that makes sure we don’t lose the current effectiveness
of what we are doing.”
In its staff mission report
last week the International Monetary Fund also welcomed Tanzania’s shift
to interest in setting monetary policy.
“The [IMF]
team also welcomed the progress towards a transition to an interest-rate
based monetary framework,” the statement noted.
High inflation
By
using interest rates, Tanzania would be joining Kenya and Uganda. Both
Kenya and Uganda set rates every two months to combat high inflation.
A
section of the press this week reported that Tanzania was moving into
capping interest rates of commercial banks as it has been done in Kenya.
But the BoT has, since, said that was not the case and that interest
rates for commercial banks will continue to be determined by the market
conditions.
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