BoT cuts key policy rate to meet liquidity demand

DAR ES SALAAM: THE Bank of Tanzania (BoT) has cut its benchmark interest rate by 25 basis points to 5.75 per cent for this year’s quarter three, down from 6.0 per cent in the previous quarter, citing stable inflation expectations.

In the two quarters to June, the central bank maintained the benchmark rate at 6.0 per cent, reflecting confidence in the inflation outlook.

The Monetary Policy Committee (MPC) that met on Tuesday lowered the CBR by 25 basis points to 5.75 per cent and the Bank of Tanzania (BoT) will manage monetary policy to keep the 7-day interbank rate with in the 3.75–7.75 per cent corridor.

The BoT Governor Emmanuel Tutuba said in Dar es Salaam yesterday that the MPC’s decision reflects confidence in the inflation outlook.

“Inflation has consistently stayed within the 3–5 per cent target range and is projected to remain stable,” he said.

He attributed this to prudent policies, the harvest season and exchange rate stability.

“Despite rising global uncertainty from geopolitical tensions and tariffs, recent agreements indicate moderating risks,” he stressed.

According to the Governor, the CBR deduction will boost market activity between the central bank and commercial banks, as well as among the banks themselves, by increasing liquidity to meet market demand.

“We conducted an assessment and found we are entering the harvest season, when public demand for money is high. This rate will enable banks to access funds,” said Mr Tutuba.

Mr Tutuba said the MPC assessed domestic economic performance and noted steady strengthening, driven by robust public infrastructure investment and rising private sector activity, supported by an improving business climate.

Risks to the outlook remain minimal, thanks to the diversified economy and consistent implementation of growth-oriented policies and programmes, which help cushion against external shocks.

On global developments, he said the Committee observed increased economic and trade uncertainty, mainly due to escalating geopolitical conflicts and higher tariffs.

“These factors may weaken growth in 2025. Consequently, output performance in the second quarter was uneven, with only a few economies showing strong growth momentum,” he added.

Overall, the Governor noted that the domestic economy continues to show resilience and sustained improvement.

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The Tanzanian shilling remained stable against major trading currencies, depreciating by only 0.2 per cent against the US dollar in the year ending June 2025, compared to 12.5 per cent in the year ending June 2024.

This stability was supported by improved foreign exchange liquidity, driven by increased tourism earnings and strong exports, particularly of gold and tobacco.

The domestic economy is projected to keep strengthening, with GDP growth forecast at 6.0 per cent in Q3 and 6.9 per cent in Q4. Zanzibar is expected to follow a similar trend.

This momentum is supported by major infrastructure investments in railways, roads, airports and sports facilities in preparation for the upcoming CHAN and AFCON tournaments, along with continued investment in agriculture and mining.

The MPC also found that the external sector strengthened in Q2, with the current account deficit narrowing to 797.1 million US dollars down from 872.1 million US dollars in Q2 of 2024.

Foreign exchange reserves rose to around 6 billion US dollars at the end of June one of the highest levels in recent years sufficient to cover approximately 4.8 months of projected imports of goods and services.

“The outlook for the external sector remains favourable, supported by seasonal peaks in exports, particularly in tourism, gold and cash crops,” he added