Tanzania adopts interest rate-based monetary policy
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- The central bank said the adoption does not imply to fix interest rates offered by banks.
- The central bank rate (CBR) will be used as a reference for determination of short-term interest rates.
Dar es Salaam. Tanzania’s central bank said on Wednesday that it has officially begun using the central bank rate to conduct its monetary policy, marking a shift from the previous framework based on controlling the quantity of money.
The adoption of the new framework, Bank of Tanzania (BoT) said, will improve the effectiveness of the monetary policy in maintaining low and stable inflation and facilitating economic activities.
Under this framework, the central bank governor Emmanuel Tutuba said in a statement that BoT will set the policy rate, known as Central bank Rate (CBR) consistent with low and stable inflation and conducive for the growth of the economy.
“A change in CBR will signal the direction of the monetary policy, either a tightening or expansionary monetary policy stance. The CBR will also be used as a guide for the determination of interest rates,” Tutuba said, adding that the adoption is in line with the country’s commitment to harmonize monetary policy frameworks in the East African Community and other regional economic communities.
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In June 2023, the bank announced a shift in its monetary policy framework, effective January 2024.
The bank said the adoption of the interest rate-based monetary policy does not imply fixing interest rates offered by the banks and other financial institutions.
“The interest rates will continue to be determined by market forces in line with other economic policies of the country,” Tutuba said.
On Tuesday the bank issued the guidelines that will guide how it will conduct its monetary policy where among other things will involve an assessment of economic conditions and it will determine the policy rate required to achieve the inflation objective, in consideration of the output growth.
— Bank of Tanzania (@BankOfTanzania) January 3, 2024
In the new framework, the guidelines said the Central Bank policy rate (CBR) shall be approved by the Monetary Policy Committee (MPC) of the Board of Directors and communicated to the general public.
“The CBR will be used as a reference for determination of short-term interest rates. This means that banks will be free to set their interest rates anchored to the CBR. The policy rate will therefore help to anchor market expectations and stabilize interest rates consistent with monetary policy stance,” reads part of the guidelines.
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