Tanzania’s central bank has raised its rate to 6.0 percent as it seeks to mop up excess liquidity and control inflation in the economy. PHOTO | FILE
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Dar es Salaam. The Bank of Tanzania (BoT) has raised its rate to 6.0 percent as it seeks to mop up excess liquidity and control inflation in the economy.
The new Central Bank Rate (CBR) set by BoT’s Monetary Policy Committee (MPC) has been revised from the previous 5.5 percentThe decision is based on the macroeconomic forecast made in March 2024 which requires an increase in the scope of monetary policy actions to contain the lingering inflationary pressures arising from global economic developments.
“The aim is to contain inflation and maintain economic growth,” said BoT governor Emmanuel Tutuba.
With a higher CBR, commercial banks which have excess liquidity will have the opportunity of trading with the BoT at a rate of not less than six percent but not exceeding eight percent.
The new CBR will be applicable in the second quarter of 2024, which runs from April 1 to June 30.
In addition, said Mr Tutuba, the MPC discussed global and domestic economic conditions in the first quarter of 2024 and the outlook for the remaining period of the year.
On global economic conditions, the MPC noted improved performance in advanced and emerging market economies. “Output growth was better than in the preceding quarter; inflation continued to decline, and monetary and financial conditions moderated.”
Mr Tutuba said the price of crude oil was stable, averaging $80 per barrel, but had recently increased slightly. The price of gold remained high, at around $1,900 per troy ounce.
The MPC expects these economic conditions to continue in the subsequent period of 2024. The OPEC+ decision on oil production and geopolitical tensions might affect the outlook.
As for the domestic economic condition, the MPC noted with satisfaction the recent performance of the economy, despite facing external headwinds.
The outlook for economic performance in the remaining three quarters of 2024 is favourable, according to Mr Tutuba
The economy is estimated to have grown by around 5 percent in 2023, an increase from 4.7 percent in the preceding year. In the first quarter of 2024, growth is estimated to be around 5.1 percent.
“The performance is underpinned by public investment, particularly in infrastructure, as part of the measures to facilitate private sector business and investment,” Mr Tutuba said.
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.
Zanzibar’s economy also performed satisfactorily, with real GDP growth estimated to be more than 6 percent in 2023, mostly driven by tourism activity. Favorable economic conditions are expected to continue in subsequent quarters of 2024.
The outlook is supported by an improving business environment, adequate rains in most parts of the country, and the continued recovery of the global economy.
Inflation remained low and stable, averaging 3.0 percent in the first quarter of 2024.
“This is in line with the country target of not more than 5 percent and convergence criteria in regional economic blocs in which Tanzania is a member,” Mr Tutuba said.
The stability was due to prudent monetary policy and an adequate domestic food supply.
In the year ending February 2024, the current account deficit narrowed to $2,701.4 million, compared to $5,133.6 million in the corresponding period in 2023. In Zanzibar, the current account deficit also narrowed.
The current account deficit is expected to continue to improve gradually, reaching 3.2 percent of GDP in the subsequent quarters. Foreign reserves remained high, at more than 5.3 billion as of the end of March 2024, equivalent to 4.4 months of projected imports.
The exchange rate depreciated by 1.8 percent in the quarter ending March 2024, compared to 1.6 percent in the preceding quarter.
He said the exchange rate depreciated relatively faster, driven by a seasonal decrease in foreign exchange flows as well as global economic conditions. The MPC also discussed the challenge of a shortage of foreign exchange in the economy and observed that the ongoing measures to increase supply and reduce demand for the US dollar are expected to stabilize the situation in the near future.
Tanzania Bankers Association (TBA) chairman Theobald Sabi echoed sentiments across the banking fraternity on the challenge facing the availability of foreign currency.
“To reiterate the sentiment across the industry, we are happy with the accommodating policies to support the banking industry,” he said.
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