Tanzania will not cap loan interest rates, says finance minister

The Finance and Planning minister, Dr Mwigulu Nchemba, speaks at a press conference in Dodoma recently. PHOTO | THE CITIZEN 

CORRESPONDENTDar es Salaam. 

The Bank of Tanzania (BoT), has no plan to cap loan interest rates, since the country now practices free monetary policy, Finance and Planning minister, Dr Mwigulu Nchemba told reporters on Sunday.

Mwigulu Nchemba was speaking in Dodoma where he was presenting his ministry’s success in the past 60 years of independence, where he said regulating interest rates equates to backsliding on the gains made in the financial sector to the days of pre-economic reforms that liberalized the banking sector in the early 1990s.
He said the government does not want to go back to the era of fixing rates since it practices a free economy.
“BoT and Finance Ministry do not want to go back to the era of fixing rates, like we did for exchange rate. The market will determine the rates,” he said adding;
“What are trying to do is for the BoT to put in place an accommodative policy.”
Dr Nchemba further said, the banking sector is dominated by the private sector and it is not wise for the government to control the sector.
High interest rates ignited a huge debate in the parliament with some lawmakers questioning whether recent fiscal measures by the central bank had improved liquidity and reduction of cost of loans.
The debate was revived last week when Vunjo MP Charles Kimei remarked in Parliament that the “good monetary policy measures” had not brought about the desired outcomes, that is, to bring down the interest rates.
In July, the BoT introduced some policy measures that laid a solid framework to increase liquidity and reduce the cost of lending to the private sector.
The central bank also said would introduce a Sh1 trillion special loan fund for banks and other financial institutions to access money for lending to the private sector.
The central bank also reduced the amount required to be reserved at the BoT, equivalent to the amount of loans extended to agriculture, as a way of increasing agriculture financing at lower interest.
However, Dr Kimei, who is the former CEO of CRDB Bank, said “the banks have just increased their profitability for the benefit of their shareholders instead of relieving the borrowers.”
 In the past few months, the commercial banks announced cutting their lending rates, particularly on personal loans. For instance, in June last year (2020), the CRDB Bank cut interest rates on loans to workers to 14 percent.
Prior to that, the bank had on May 11, 2018 cut its lending rate from 22 to 17 percent. A few days later, it cut the rate on personal loans to 16 percent - and, finally, cut it further to 14 percent.