The Bank of Tanzania (BOT) has increased its interest rate (CBR) from 5.5% to 6% following a meeting held by its monetary policy committee on Wednesday.
This adjustment, effective from Q2 2024, is in response to changes in inflation, which remained steady at 3% in Q1, indicating the central bank’s aim to maintain stable prices and promote economic growth.
“The decision of the MPC is based on [the] macroeconomic forecast made in March 2024, which requires an increase in the scope of the monetary policy actions to contain the lingering inflation pressures arising from global economic developments,” said Emmanuel Tutuba, the central bank’s governor.
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Tanzania’s economy grew by 5.1% in 2023, up from 4.7% in 2023. Growth in the first quarter of 2024 was also estimated at 5.1%. This growth was supported by increased public investment, especially in infrastructure, that sought to boost the private sector activity and investment.
Q1’s inflation remained under the country’s target of below 5% and regional economic blocs’ convergence criteria. This stability was maintained through monetary policy and sufficient domestic food supply.
As of January 2024, the BOT changed its monetary policy approach from focusing on the quantity of money to using interest rates. At that time, BOT said that an interest rate-based policy might give the bank more control over economic conditions.
“The implementation of monetary policy in the first quarter of 2024 succeeded in containing the seven-day interbank interest rate within the target band of 3.5-7.5%. Credit was mostly directed to agriculture, mining, transport and manufacturing activities,” BOT said.
Under this framework, the BOT sets the CBR based on alignment with low inflation and support for economic growth. The CBR guides monetary policy, allowing for either tightening or expansionary measures.
However, it does not fix interest rates offered by banks and financial institutions in Tanzania, which market dynamics will still influence.
