BOT keeps lending rate at 6 percent to shield economy

Dar es Salaam. The Bank of Tanzania (BoT) has decided to maintain its key lending rate, the Central Bank Rate (CBR), at 6 percent in a bid to protect the country's economy amid global trade uncertainties and geopolitical tensions.

The move aims to shield the economy from the adverse effects of rising trade tariffs and fluctuations in the global market.

According to BoT, the exchange rate pressure experienced in the first quarter of 2025 was seasonal, and is expected to ease as foreign currency inflows increase in the coming months.

The decision was made following a Monetary Policy Committee (MPC) meeting on April 3, 2025, where the committee reviewed the nation's recent economic performance and assessed prospects for the second quarter of the year.

 The MPC concluded that maintaining the CBR at 6 percent would help stabilise the economy.

Speaking on behalf of BoT Governor Emmanuel Tutuba, Deputy Governor Dr. Yamungu Kayandabila emphasised that while the economic outlook is positive, there remain global uncertainties that could affect inflation and economic growth.

"Therefore, the Bank will continue to ensure that the 7-day interbank lending rate stays within the range of 4 to 8 percent," he said, adding that further improvements to the interbank market would be made to maintain better control over interest rates. BoT will also monitor inflation closely and adjust monetary policy as necessary.

Dr. Kayandabila noted that early 2025 has seen strong growth in both advanced and emerging economies. Global inflation has eased due to reduced economic shocks and tighter monetary policies. This has led many central banks to begin cutting their policy rates.

However, he cautioned that new trade tariffs could present challenges to future inflation.

"On the domestic front, Tanzania’s economy has remained resilient, with strong performance since January 2025. According to recent market and CEO surveys, we are on a positive trajectory," he said. "A March 2025 Moody’s report also affirmed Tanzania’s credit rating at B1 with a stable outlook."

Dr. Kayandabila also highlighted Tanzania’s strong economic growth in 2024, with Mainland Tanzania recording a 5.5 percent growth rate, up from 5.1 percent in 2023. This growth was driven by key sectors, including agriculture, finance, mining, and construction, with tourism also contributing significantly.

In Zanzibar, the economy outperformed expectations, growing by 7.2 percent in late 2024, compared to just 2.2 percent during the same period the previous year. This growth was fueled by tourism and trade, and it is projected to reach 6.5 percent in the second quarter of 2025.

Inflation remained under control, thanks to adequate food supply, tight spending measures, and lower global energy prices. In Mainland Tanzania, inflation averaged 3.1 percent in 2024 and 3.2 percent in the first quarter of 2025, well below the 5 percent target. In Zanzibar, inflation dropped to 5.1 percent in 2024 and 4.8 percent in February 2025, with expectations to stay around 3.2 percent in the second quarter.

The money supply grew strongly in 2024, driven by increased lending to the private sector, particularly to small and medium-sized enterprises (SMEs), agriculture, trade, and manufacturing.

Dr Kayandabila highlighted that Tanzania’s banking sector remains stable, profitable, and well-capitalised, with a low rate of non-performing loans at 3.6 percent—below the recommended ceiling of 5 percent.

Tax revenues for both Mainland Tanzania and Zanzibar met targets for the third quarter of the 2024/25 financial year, reflecting improved tax collection and compliance. Governments continue to manage their spending prudently, keeping public debt at sustainable levels.

Tanzania’s trade position showed improvement in the year ending March 2025. The current account deficit decreased to 2.6 percent of GDP from 3.7 percent the previous year, primarily due to higher exports, particularly in tourism, gold, cashew nuts, and tobacco.

Zanzibar’s trade surplus rose to $563.5 million, up from $407.4 million, largely driven by increased tourism income.

Foreign reserves remained strong at over $5.6 billion, covering 4.5 months of imports. This level is expected to hold steady through the second quarter of 2025.

Responding to concerns about the impact of global tariffs and changes in gold exports, BoT's Director of Policy and Research, Dr. Suleiman Misango, reassured that Tanzania’s economy does not rely solely on gold exports. He pointed to other key sectors such as cashew nuts, tourism, and agriculture as significant contributors to the nation’s economy.

Tanzania Bankers Association Chairman, Theobald Sabi, expressed confidence in the country's economic performance, citing the strong GDP growth, improved trade balance, and effective management of public finances as evidence of a resilient economy.