DAR ES SALAAM: THE Central Bank Rate (CBR) for the third quarter ending September will remain unchanged at 6 percent, supported by a robustly growing economy, alleviated exchange rate pressures, and effective implementation of monetary policies aimed at controlling inflation.
The Bank of Tanzania’s Governor, Emmanuel Tutuba said in a statement yesterday that the Monetary Policy Committee (MPC) which sat on Wednesday deemed that the implementation of the monetary policy in the previous two quarters had successfully curbed inflation below the five per cent target.
He said in the statement that the decision to maintain the rate was also reinforced by a positive outlook for the global economy, especially expectations of falling inflation in most countries, easing financial conditions in international markets, and moderate prices in the world market.
The committee also expects Tanzania economy to continue growing strongly,food supply to be adequate, and exchange rate pressures to moderate owing to increased foreign exchange inflows from tourism, gold, as well as cash crops and food.
The annual headline inflation rate for May 2024 stayed at 3.1 per cent, the same as April below the central bank target of five per cent.
In its latest Monetary Policy Committee (MPC) statement, the central bank said inflation was expected to range from 3 – 4 per cent in the second half of 2024.
“The MPC expects Tanzania’s economy to continue growing strongly, food supply to be adequate, and exchange rate pressures to moderate owing to increased foreign exchange inflows from tourism, gold, as well as cash crops and food,” the statement read by the BOT Deputy Governor Dr Yamungu Kayandabila.
This newspaper published an article this week in which debt market analysts had predicted the CBR will remain unchanged at 6.0 per cent.
Tanzania’s economy has been resilient, growing by 5.1 per cent in 2023, up from 4.7 per cent in 2022 driven by tourism, agriculture, mining, quarrying, construction, and financial intermediation, mainly credit to the private sector.
The MPC forecast growth for the first and second quarters of the year was estimated around 5.0 per cent and 5.4 per cent, respectively, it said.
The current account deficit in the country of around 65 million people is estimated to have narrowed slightly to $959 million in the quarter ending in June, compared with $978 million in the corresponding quarter in 2023.
Another factor is the improved asset quality, as reflected by a lower Non-Performing Loans ratio of 4.4 per cent in May 2024, below the tolerable level of 5 per cent and 5.5 per cent recorded in the corresponding period in 2023.
“Credit to the private sector is expected to remain high, against the backdrop of improving global and domestic economic conditions,” Dr Kayandabila stated.
The Monetary Policy Committee (MPC)’s assessment of the outlook of the economy and the balance of risks indicate that the implementation of monetary policy in the previous two quarters successfully anchored inflation expectations well below the target of 5 per cent.
This also is reinforced by a positive outlook for the global economy, especially expectations of falling inflation in most countries, easing financial conditions in international markets and moderate prices in the world market.
On global economic activity, the MPC observed that growth outturns in the first and second quarters of 2024 have been strong in most countries.
Inflation has been falling, financial conditions easing and central banks in most countries have receded the interest rate hiking cycle.
Crude oil prices declined, but edged up towards the end of June 2024.
The price of gold remained elevated, as investors sought safe-haven assets, amidst currency depreciation and geopolitical conflicts.
On balance, these global economic conditions are expected to prevail in the outer period of 2024 and in the subsequent year, despite facing a risk of further escalation of geopolitical conflicts and trade disputes.
Domestic economic conditions have improved significantly in the recent past, at the back of implementation of policies and reforms for fostering high economic growth.
The outlook also is positive, driven by expected favourable weather for agriculture, adequate power supply, improvement in infrastructure (especially railways, roads and ports), as well as policies and reform programmes.
Analysts had it that going by the current inflation rate of around 3.0 per cent, the environment supports a CBR to stimulate economic growth and maintain currency stability.
However, some said the foreign exchange rate of around 2,600/- per US dollar, the major trading currency of the country, may trigger a minute upward tick.
Kelvin Msangi, an Operation Director at Tanzania Music Rights Society told Business Standard: “maintaining this rate would support economic stability and recovery.”
Before the announcement of the rate, some analysts were divided between maintaining it and increasing it based on the monthly weighted average 7-day interbank rate that had consistently risen in the last three months from 7.08 per cent in April to 7.50 per cent in June.
“I am divided between a maintenance of 6.0 per cent and a 50bps increase,” Imani Muhingo, Head of Research and Financial Analytics at Alpha Capital, said.
He had attributed his prediction to the fact that the country’s CBR was the lowest in the region which could lead to some realignment with regional peers, but also limiting the demand for foreign exchange which requires limiting growth of domestic money supply.
Vertex International Securities, Research and Analytics Manager Beatus Mlingi had insisted that the recent trends in the country’s capital market and the central bank’s actions supported keeping the rate unchanged.
“…It is anticipated that the BoT might maintain or increase the central bank rate for the third quarter,” Mr Mlingi had predicted.
He said persistent or increasing inflation pressures could prompt the BoT to raise rates to curb inflation.