Tanzania: Lending Rates Slumps Down

LENDING rates on loans were lower in October this year than in the corresponding period last year, partly reflecting the accommodative monetary policy, efforts to

reduce risk premium and streamlined fiscal policy.

According to the Bank of Tanzania (BoT) the overall lending rate averaged 16.77 percent in the month under review, down from 17.32 percent in the corresponding month last year.

One year lending rate averaged at 16.71 percent compared with 18.34 percent.

As regards to interest rates on deposits, the overall deposit rate decreased to an average of 7.30 percent from 7.93 percent, while one-year deposit rate averaged 8.84 percent compared with 8.11 percent registered in October 2018.

The decline in deposit interest rate was associated with improved liquidity in the banking system.

As a result, the spread between one-year deposits rate and lending rate narrowed significantly to 7.87 percentage points in October 2019 from 10.22 percentage points in similar month of 2018.

Interest rates on loans and deposits by banks sustained a downward movement since September 2017, partly attributed to accommodative monetary policy pursued since early 2017 and on-going reforms by the government to improve business environment.

The easing lending rate made credit to the private sector to continue expanding somewhat strongly by 9.8 percent in October 2019 compared with 9.3 percent and 4.8 percent in the year ending September 2019 and October 2018, respectively.

The strong growth was partly a reflection of accommodative monetary and measures implemented to improve the business environment, and expansion of economic activities in the country.

Credit to the central government by the banking system namely the central bank and banks, grew by 3.4 percent in the year ending October 2019 compared with 14.8 percent in October 2018, owing to buildup of government deposits at the Bank of Tanzania.

Net domestic credit from the banking system grew by 8.7 percent in the year ending October 2019, higher than 6.2 percent and 6.4 percent in the year ending September 2019 and October 2018, respectively.