The interbank rates, according to the Bank of Tanzania (BoT) rose for the last two months to close at an average of 8.46 per cent. But the rates are not as higher as last year when they reached 40 per cent.
The National Microfinance Bank (NMB) said the rate are on the rising mode tracking the T-bills while same banks were showing signs of liquidity scarce. "The interbank lending rate rose with banks showing signs of liquidity tightness, as overnight rates continued to track the rising Treasury Bill rates," NMB said on e-newsletter.
The Tanzania Security Chief Executive Officer, Mr Moremi Marwa, said though the rates are on higher side the situation was alarming as of the end of last year, the same reached 40 per cent. "High rate of interbank rates shows that banks are struggling to raise funds to meet their lending obligations. This pushes up the prices of loans to impact negatively on businesses," Mr Marwa said.
Interbank are the rates which banks are lending each other in overnight deals and are normally at below 5 per cent. The better rate is around 1 and 2 per cent that facilitate positively on lending. The Tanzania Securities CEO said: "The rates are expected to climb to around 10 per cent in December when bank's and individual's money obligation increases.
"The spread (between T-bills and interbank) is not that wide, though they are not supposed to be so close." Average T-bills in the last auction two weeks ago stood at 13.4 per cent compared to yesterday's 8.46 per cent, representing a spread of 5.0 per cent, which is a wide gap in money markets.
The Zan Securities CEO, Mr Raphael Masumbuko, said higher overnight rates has multiple effects to consumers as they reduces consumption pattern due to high costs of goods and services as a result of higher borrowing rates. "There is a need to revisits monetary policy to ease the squeeze on money in circulation," Mr Masumbuko said, "because in the long run higher overnight rates fuel inflation."
Standard Chartered Bank said on its daily market report on Wednesday that interbank rates declined slightly to 14.25bn/- from 15.1bn/- as liquidity situation improved. "Wednesday BoT will be auctioning 43bn/-, 7.82 per cent coupon 2-year bond and the expectation is that the auction will be oversubscribed as liquidity has improved in the interbank," the bank said.