Tuesday, April 9, 2024

BoT: Rate hike won’t affect banks’ lending

 Henry Lyimo

DAR ES SALAAM: THE rise in central bank rate from 5.5 to 6 per cent for the second quarter of this year will not divert the bank’s appetite to lending to the private sector, a Bank of Tanzania senior officer has said.

Dr Suleiman Missango, BoT’s Director of Economic Research and Policy, said in Dar es Salaam on Monday their projections showed there would be no risks for banks pulling back to lending to the private sector in favour of buying government securities by the central bank.

“There will still be an appetite to lending to the private sector and can be seen by strong private sector credit growth in the first quarter,” said Dr Missango at a meeting with editors and senior reporters.

Private sector credit growth remained strong, in the first quarter of 2024 averaging 17 per cent, the same as in the preceding quarter. The central bank raised its key interest rate from 5.5 per cent in the first quarter of 2024 to 6.0 per cent for the second quarter of 2024 to contain inflation within its target and boost economic growth.

The 5.5 policy rate was set in January after the central bank adopted an interest-rate-based monetary policy framework to contain inflation within its target and boost economic growth. Private sector credit growth remained strong in the second quarter of 2024 after the central bank rate announced its policy rate in January, averaging 17 per cent, the same as in the preceding quarter.

Credit was mostly directed to agriculture, mining, transport and manufacturing activities. Demand for credit is expected to remain strong, attributable to improving business and investment conditions.

“The 17 per cent growth of credit to the private sector is satisfactorily given the economic trend,” he said.

The economy is estimated to have expanded at 5.1 per cent in the first quarter of 2024 containing a steady growth of about 5 per cent in 2023 from 4.7 per cent a year earlier.

The performance is underpinned by public investment, particularly in infrastructure, as part of the measures to facilitate private-sector business and investment.

Private sector investment also contributed to the estimated growth, because of the improving business environment in the country, as reflected by the high growth of credit to the private sector and the increase in foreign direct investment.

Inflation remained steady at 3 per cent year on year in February, unchanged from a month earlier, staying below the government’s target of not more than 5 per cent and convergence criteria in regional economic blocs in which Tanzania is a member.

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