Financial market sets stage for BoT’s policy rate launch

By ABDUEL ELINAZA 

THE market has started to respond to Bank of Tanzania (BoT) interest rate fluctuation measure, paving the way for introduction of interest rate based monetary policy.

The policy framework that was expected to be launched in March before pushed back to this month, is

geared to shift from reserve money, but the million dollar question is whether the market is ready or not.

” Although the Central Bank is to announce the launching date of the new policy, recent developments in the financial market portray good prospects after leading banks started cutting lending rates following lowering of Treasury bill and bonds rates.

Tanzania Mortgage Refine Company issued a five-year bond worth 12bn/-, a first tranche of 120bn/-, after government securities price dropped to lowest in history to warrant the bond issuance, which was not possible four years ago.

This move in the market pointed out that once the BoT policy rate announced players will follow suit, especially after factor-in stiff competition.

CRDB Bank, leading bank in term of assets announced a significant cut in interest rate for personal loans to 16 per cent from 22 per cent, to entice salaried workers to borrow and increased payback tenure from five to seven years.

“We are considering lowering even further the rate depending on what is happening on the market,” Dr Kimei said in a press conference.

CRDB reduction of interest rate came after NMB Bank, the largest in terms of profitability also announced reduction of interest rates for personal loan and SMEs to 17 per cent from 19 per cent for salaried workers over the weekend.

NMB went further and cut rate for SMEs to 19 per cent from 21 per cent while for the micro, small and medium enterprises down to 21 per cent from 23 per cent. NMB Bank’s Managing Director Ms Ineke Bussemaker said, that was broad step towards creating solution for employees whose salary goes through the bank.

The move by the two banks, which are market leaders, will likely to be followed by others players in the market. Over the weekend, TMRC launched their bond after T-bond rates reduced to lowest rate in recently times.

TMRC source low interest fund and lend financial institutions. TMRC Chief Executive Officer, Oscar Mgaya said, the offer timing was good since the government securities interest rates have gone down considerably.

“The low interest rate of government bond enables us to issue this bond as we will access the public fund at low interest,” Mr Mgaya said over the weekend when launching sale initiative to stakeholders. The semi-annual interest paid back bond price will be benchmarked by the five-year government security that will go on sale prior to close the sales.

TMRC Chairman, Mr Ammish Owusu-Amoah said, they wanted to launch the same bond four years ago but failed because government securities weighted average yield were on the high side—over 15 per cent.

“TMRC was unable to issue the bond as funds mobilised would have been too expensive and hence unattractive to borrowers,” Mr Owusu-Amoah, who is also the CEO of BOA bank said.

The last five-year government bond average yield rate was 11.06 per cent, while 186 days Treasury bill dropped to 2.67 per cent this month and hoped to descend further next month.

The T-bills rates are important since they will determine the amount to be paid twice a yield before full maturity. Last year BoT slashed down discount rate by three per cent from 12 per cent to 9.0 per cent to improve lending rates to its customers--banks.

The discount rate which is applicable to banks borrowings from BoT will also be used to discount the government securities.