Tighter policy slows credit growth rate

DAR ES SALAAM: PRIVATE sector credit grew by 15.1 per cent in ten months to April, down from 18.4 per cent in the same period earlier, reflecting tighter monetary policy to curb inflation from the shilling’s depreciation.

The statement is part of the latest Monetary Policy Statement released by the Bank of Tanzania.

By tightening monetary policy to contain inflation, the central bank aims to stabilise prices, support sustainable economic growth and foster a predictable environment for consumers and investors alike.

The ratio of private sector credit to GDP, an indicator of financial deepening, increased to 19.5 per cent from 16.9 per cent, driven by improving business conditions, supportive monetary and fiscal policies and continued recovery in economic activities.

Controlling inflationary pressure is crucial to maintaining economic stability, protecting consumers’ purchasing power and preserving investor confidence.

When inflation rises unchecked especially due to factors like currency depreciation it erodes the value of money, increases the cost of living and disproportionately affects low- and fixed-income households.

For businesses, rising input costs can shrink profit margins and reduce investment appetite.

Personal loans, mostly extended to small and medium-sized enterprises for productive activities, continued to account for the largest share of the outstanding credit and the major driver of private sector credit growth.

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According to the report, the credit to agriculture has been rising growing at annual rate of 40 per cent meanwhile, its contribution to credit growth has also been increasing, reaching around 24 per cent during the review period, from 18 per cent in the corresponding period in 2023/243.

The outturn is largely due to banks’ access to the 1tri/- loan facility and SMR relief for lending to the agricultural sector.

In addition, government initiatives to improve productivity in the agriculture sector through the provision of funds to improve infrastructure for irrigation, extension services and research have incentivised banks’ lending to the sector.

This is in addition to the provision of subsidies on fertilisers, seeds and extension services. The growth of money supply remained robust during 2024/25.

The extended broad money supply registered an average annual growth of 13.8 per cent for the first ten months of 2024/25, compared with 14.4 per cent in the corresponding period in 2023/24. This was mainly driven by private sector credit growth.