Tanzania officially adopts interest rate-based monetary policy
Bank of Tanzania Governor Emmanuel Tutuba. PHOTO | COURTESY
What you need to know:
- From this month the Bank of Tanzania would set the policy rate, known as the Central Bank Rate (CBR), consistent with low and stable inflation conducive to economic growth
Dar es Salaam. The Bank of Tanzania (BoT) has announced a major shift in how it manages the economy.
With effect from January 2024, they're moving from a "quantity of money" approach to a modern, interest rate-based monetary policy framework.
This means, instead of focusing solely on controlling the amount of money circulating in the economy, the BoT will now use interest rates as the main tool to steer inflation and economic growth.
BOT Governor Emmanuel Tutuba says that the new framework will be more effective in keeping prices stable and low, which benefits everyone from shoppers to entrepreneurs.
It also aligns with Tanzania's commitment to regional economic cooperation and puts the country on par with other East African nations.
The BoT will set a key interest rate, called the Central Bank Rate (CBR). This rate will signal whether the bank is tightening or loosening its grip on the economy. Lowering the CBR could stimulate borrowing and spending, while raising it could slow down inflation.
The CBR will guide banks, but they'll still set their own interest rates based on market forces.
This new approach aims to create a more stable and predictable economic environment, which benefits everyone. For businesses, it means clearer borrowing costs and potentially easier access to credit. For savers, it could mean higher interest rates on their deposits.
The Bank of Tanzania's shift to an interest rate-based monetary policy marks a significant step towards a more modern and efficient way of managing the economy.
