Outlook on BoT MPC amid US-Iran conflict delay decision April 2026

DAR ES SALAAM: THE Bank of Tanzania (BoT)’s Monetary Policy Committee (MPC) held the Central Bank Rate (CBR) unchanged at 5.75 percent at its meeting on 2 April 2026, marking the third consecutive meeting at this level.

In my view, the decision, from an economic perspective, underscores the MPC’s cautious stance, as it balances contained domestic inflation with rising global uncertainty, particularly stemming from the escalation of the US–Iran conflict.

Based on this stand, I am of the view that at the end of 2026, my view will increase from 5.75 percent to 6.00 percent, reflecting a 25-basis point (bps) hike.

While the MPC opted to pause in April 2026, this tone, in my assessment, suggests increased vigilance toward external shocks, likely driven by elevated geopolitical risk, particularly through energy prices, global financial conditions, and capital flow volatility, which raises the probability of policy tightening despite stable nearterm inflation.

Maintaining the CBR at 5.75 percent implies that the MPC has kept it at that level, noting that inflation remains within the BoT’s 3.0–5.0 percent target band and that domestic economic activity continues to show resilience, a good sign that the BoT’s prudent policies are working. However, the policy backdrop over the horizon might become increasingly complex.

The US–Iran conflict is also introducing substantial inflationary risks through higher oil prices, which, if the ceasefire period doesn’t produce positive results in halting the war’s escalation, would feed into transport costs, food distribution, and broader consumer prices in the coming quarters. More critically, external pressures pose risks to the Tanzanian shilling.

Should global risk aversion increase and portfolio flows weaken further, renewed FX pressure would unquestionably emerge, which could have an anomalous impact on the economy.

A sharper or more persistent depreciation of the shilling, especially if BoT FX interventions prove insufficient or delayed, would amplify imported inflation and strengthen the case for tighter monetary conditions. Looking at the overall dynamics and how the global aftereffect is emerging, my view is that it will tilt toward additional tightening beyond our baseline 25 bps hike.

Why? It is clear that the ongoing conflict between the United States and Iran is disrupting global supply chains, particularly in the oil and energy markets. Crude prices have surged in recent weeks due to disruptions at the Strait of Hormuz and damage to oil infrastructure. Physical prices have reached $120–$150 per barrel.

The IMF has already downgraded global growth forecasts to approximately 3.1 percent and warned that inflation will continue to rise if the conflict persists. Consequently, global inflation has increased, and economic growth will be slowed.

The transmission is direct for Tanzania, as it is a net fuel importer: higher oil prices increase transport costs, widen the current account deficit, will, sooner or later, weaken the shilling, and ultimately raise food and consumer prices.

The implication is that Tanzania faces a classic stagflation risk, which will be characterised by slowing growth and rising inflation, driven primarily by external factors beyond the country’s control.

Hence, a significant escalation of the US–Iran conflict, accompanied by persistently elevated oil prices, would likely push headline inflation towards the upper bound or beyond the BoT’s tolerance range.

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In such a scenario, especially if exchangerate pressures intensify or inflation expectations become less anchored, the MPC would have no choice but to consider further rate hikes to safeguard price stability and the external balance.

In this context, the Bank of Tanzania’s decision to maintain the policy rate at 5.75 percent in April 2026 can be seen as cautious and balanced, not inherently incorrect but incomplete. By maintaining its stance rather than tightening aggressively, the Bank prevented the stifling of the Tanzanian economic growth at a time when inflation pressures are still emerging and are primarily imported.

Nevertheless, looking back, my learning from the University of Dar es Salaam while pursuing my economics degree, then in 1991-1993, monetary policy is a limited tool for combating supplyside inflation, such as fuel shocks.

The impact on the economy is clear. A significant increase in rates would likely reduce investment and credit without substantially reducing fueldriven inflation.

A more practical approach to BOT would have been a mixed policy strategy, maintaining moderate interest rates (as has been done) while simultaneously implementing targeted fiscal and structural measures, such as temporary fuel-tax smoothing, strategic fuel procurement (G-to-G), and exchange-rate support through export promotion and selective FX intervention.

In essence, the most effective policy is not aggressive tightening but coordinated stabilisation, as the current inflation is not demand-driven but rather imported and supply-driven.