First BoT policy rate in the offing

Bank of Tanzania (BoT) said on Tuesday that the first policy interest rate will be known after the Monetary Policy Committee (MPC) meeting planned in next two weeks.

The central bank said the MPC will be the appex body to determine the policy rate and announced immediately after its meeting based on seventy-day interbank cash market rate and the market should “trust the kitchen”

BoT’s Director of Economic Research and Policy Dr Suleiman Misango said the announced rate will last for three months and are subjected to review in the next period.

“We are the kitchen and the market should trust BoT and the policy rate is quarterly and is subjected to review to whether maintain or down or up.

“The central bank will monitor the IBCM seven days rate to see if the banks borrow closely or depart away from the IBCM.

“If closely then BoT achieved its objective in tackling inflation. If depart from IBCM then central bank opens to door to enable banks to borrow below the IBCM,” Dr Misango said during one day seminar to journalists.

However he said cautioned that the market should consider monetary transition to affect inflation and growth and foreign exchange stability takes time.

Additionally, he said the BoT will but alot of weight on curbing inflation while growth will take the second priority and foreign exchange stability the last.

“BoT mandated to control inflation but if inflation is at acceptable planed rate then shift to economy growth and foreign exchange…after all centred on controlling price stability, ” Dr Misango said.

Last week central bank officially said the country migrate from reserve money to interest rates targeting policy which is more efficient and appropriate for an expanding economy like Tanzania.

Some analysts last week commended he central bank choice of a seven-day interbank rate and described as a nest anchor towards migrating from reserve money to short-term interest rates to influence inflation.

The seven-day IBCM—is already perceived by commercial banks as the policy rates while the market perceived the system as platform for lending and borrowing amongst banks.

Alpha Capital Head of Research and Analytics, Imani Muhingo, told ‘Daily News’ that the central bank’s choice of the seven-day interbank rate as an “anchor is commendable since banks already perceived the overnight IBCM rate” as the policy rate.

“Therefore,” he further said, “markets should expect a more efficient monetary policy implementation.”

The analyst said the interest rate target success in the region is evidenced in Uganda which has a relatively stronger monetary policy transmission in the East African Community (EAC) region as per IMF documents.

Simply put, the monetary policy framework transition means the central bank shifts from targeting aggregate reserve money supply to influence inflation, and begins using targeted short-term interest rates to gauge the monetary policy in pursuit in price stability and targeted inflation.

“There is numerous empirical evidence indicating the efficiency of interest rates targeting in the monetary policy transmission over aggregate reserve money targeting,” he said.

The current monetary policy framework transition is in line with the harmonisation of EAC monetary policy frameworks, which had a deadline of the fiscal year 2023/24.

Thus, the country becomes a member of the group that uses this policy, which was first implemented by the Bank of New Zealand in 1990. In Africa, Ghana was the first country to switch to interest rates targeting policy followed by South Africa, and Mauritius. In East Africa Uganda was the first in 2011.

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