Friendly monetary policy speeds up Tanzania's recovery

The headquarters of the Bank of Tanzania in Dar es Salaam. PHOTO | FILE

By The Citizen Reporter

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Dar es Salaam. The Monetary Policy Committee (MPC) of the Bank of Tanzania has maintained accommodative monetary policy to support the economic recovery after noticing progress.

In a statement issued by central bank governor Prof Florens Luoga, the team said it was satisfied with the policy outcome to the performance of the economy.

Accommodative monetary policy includes measures such as lowering statutory reserve requirement and cutting of discount rate to expand money supply in the economy.

The MPC, which met on Monday to review recent developments, observed that growth of Tanzania’s mainland economy was satisfactory, at 4.9 percent in the first three quarters of 2021.

“The growth was driven by construction, agriculture, mining and quarrying, manufacturing and transport. Inflation gradually increased to 4.2 percent in December 2021 from 3.8 percent in July 2021 due to supply-side factors, but remained within the target of 3-5 percent,” it stated.

The Zanzibar economy also grew impressively by 8.8 percent in the third quarter of 2021, higher than growth of 3.3 percent in the corresponding quarter of 2020, largely driven by resumption of economic activities, particularly tourism.

“The external sector of the economy has continued to recover from the effects of the Covid-19 pandemic, with resumption in tourism,” he said.

Foreign exchange reserves remained adequate, the committee said, amounting to $6.4 billion and sufficient to cover 6.6 months of imports, in line with the minimum requirement of four months.

The statement added that the government budget execution was in conformity with the estimates due to improvement in revenue collection and receipt of foreign grants and loans.

“The MPC observed that, due to the recent satisfactory performance of the economy and continuing recovery of the global economy, macroeconomic targets for 2021/22 set forth in the Monetary Policy Statement, issued in June 2021, will be achieved,” he said.

Inflation edged up, driven by a rise in nonfood prices, but was lower than the target of five percent while the private sector credit growth improved to 7.8 percent and 10 percent in November and December 2021, respectively, from less than five percent in much of 2021, and was consistent with the target of 10.6 percent for 2021/22.

This was attributable to accommodative monetary policy, measures adopted to increase bank lending and lower interest rates, and rebound of economic activities following re-opening of the global economy.