BoT raises key interest rate to control inflation

DAR ES SALAAM: THE Bank of Tanzania (BoT) has raised its key interest rate from 5.5 per cent to 6 per cent to curb inflationary pressures from global economic developments despite the satisfactory domestic condition.

The BoT Governor, Emmanuel Tutuba said in Dar es Salaam on Thursday that the new Central Bank Rate (CBR) will be applicable in the second quarter of 2024, which runs from April to June 2024.

“The 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,” he said at a meeting with heads of banks and mobile telephone firms that provide financial services.

The Bank of Tanzania set its main interest rate at 5.5 per cent in January this year after adopting an interest-rate-based monetary policy framework to contain inflation within its target and boost economic growth.

The January announcement was the first by the Central Bank after using a benchmark interest rate to signal its monetary policy direction.

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, he said.

“The stability was due to prudent monetary policy and adequate domestic food supply,” he said.

He said they were optimistic about the economic growth outlook for 2024 estimated to have expanded at 5.1 per cent in the first quarter of 2024. The Central Bank estimates the economy to have grown 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.

He said private sector credit growth remained strong, averaging 17 per cent, the same as in the preceding quarter and its demand is expected to remain strong, attributable to improving business and investment conditions.

Credit was mostly directed to agriculture, mining, transport and manufacturing activities, he said.

He further said fiscal performance was satisfactory boosted by increasing revenue collection. In the quarter ending March 2024, revenue in Mainland Tanzania was about 95 percent of the target.

In Zanzibar, domestic revenue surpassed the target by 6.4 per cent, largely credited to improved revenue administration and compliance, he said.

According to him, expenditure continued to be aligned with the available resources for both Mainland Tanzania and Zanzibar and public debt remained sustainable with moderate risk of debt distress.

Mr Tutuba said the current account balance continued to improve, attributable to moderate prices of imports and good performance in exports.

In the year ending February 2024, the current account deficit narrowed to 2,701.4 million US dollars down from 5,133.6 million US dollars in the corresponding period in 2023, he said.

According to him, the current account deficit is expected to continue gradually improving, reaching 3.2 per cent of GDP in the subsequent quarters.

He also said foreign reserves remained high, at more than 5.3 billion US dollars as of the end of March 2024, equivalent to 4.4 months of projected imports.

The exchange rate depreciated by 1.8 per cent in the quarter ending March 2024 compared to 1.6 percent in the preceding quarter.

The Tanzania Bankers Association (TBA) Chairman, Theobald Sabi said the banking industry was satisfied with the reasons provided for the rise of the central bank’s key interest rate.

“The details and reasons behind the decision are well articulated,” he said.

He further said the banking industry was grateful to the Central Bank for the support during challenges including shortage of foreign currencies.

“I also want to echo the sentiment from across the banking fraternity on the support that we continue to receive on areas that have so far been challenging including the availability of foreign currencies…” he said.

“I would like just to reiterate the sentiment across the industry…that we are happy with the development support and accommodative support the Central Bank has been taking to support the banking industry and the economy at large,” he said.

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