Comprehensive Analysis of Lending Rates, Deposit Rates, Spreads, and Monetary Policy Impact in Tanzania's Banking Sector
December 2025 Analysis | TICGL Economic Research
Tanzania's economy in 2025 sustained robust momentum, with mainland real GDP growth at 6.4% in Q3, driven by agriculture, mining, construction, and financial services. Headline inflation remained subdued at 3.6% in December 2025, within the 3-5% national target, supported by easing global commodity pressures.
Interest rates in Tanzania remain structurally high on the lending side and subdued on the deposit side, despite accommodative monetary conditions. This limits credit expansion—especially for SMEs—and highlights the need for financial sector reforms beyond monetary policy alone.
Lending rates in Tanzania remained high but stable throughout 2025, reflecting ongoing credit risk pricing, operational costs, and cautious lending behavior by commercial banks. Despite improved liquidity conditions in the banking sector, the transmission of accommodative monetary policy to retail lending rates remained weak.
| Loan Category | Interest Rate (%) | Key Characteristics |
|---|---|---|
| Overall Average Lending Rate | 15.41% | Reflects aggregate commercial bank lending |
| Overdraft Facilities | 17.8% | Highest rates due to unsecured nature |
| Term Loans (Business) | 14.5% | Medium-term commercial lending |
| Personal Loans | 16.2% | Higher risk premium for individuals |
| Mortgage Loans | 12.9% | Lowest rates due to collateral security |
| SME Loans | 16.8% | Elevated rates reflect perceived credit risk |
Despite easing liquidity conditions and an accommodative monetary policy stance (with the Central Bank Rate at 5.75%), lending rates declined only slightly from earlier 2025 trends (approximately 15.18-15.19%). This indicates structural rigidities in credit pricing rather than active monetary tightening.
The persistently high lending rates suggest:
The high cost of borrowing in Tanzania (averaging 15.41%) presents both challenges and opportunities:
Deposit rates in Tanzania remained relatively low throughout 2025, contributing to a wide interest rate spread and providing limited incentives for household savings mobilization. The subdued deposit rates reflect excess liquidity in the banking system and weak competition for deposits.
| Deposit Category | Interest Rate (%) | Key Characteristics |
|---|---|---|
| Overall Average Deposit Rate | 8.21% | Weighted average across all deposit types |
| Savings Accounts | 3.17% | Lowest rates; highly liquid |
| 3-Month Fixed Deposits | 6.50% | Short-term time deposits |
| 6-Month Fixed Deposits | 7.80% | Medium-term fixed deposits |
| 12-Month Fixed Deposits | 9.20% | Higher returns for longer commitment |
| Current/Checking Accounts | 0.50% | Minimal interest; transaction-focused |
The low deposit rates, particularly for savings accounts at just 3.17%, create several important dynamics in Tanzania's financial system:
With headline inflation at 3.6% and savings accounts offering only 3.17%, depositors face critical considerations:
The interest rate spread—the difference between lending and deposit rates—is a critical indicator of banking sector efficiency, competition, and intermediation costs. In Tanzania, this spread remained persistently wide throughout 2025, signaling structural challenges in the financial sector.
| Metric | Rate (%) | Implication |
|---|---|---|
| Average Lending Rate | 15.41% | Cost of borrowing |
| Average Deposit Rate | 8.21% | Return to savers |
| Interest Rate Spread | 7.20% | Banking sector margin |
| Regional Peer Average Spread | 5.50% | East African Community comparison |
| Spread Differential | +1.70% | Above regional average |
The 7.20% interest rate spread in Tanzania is significantly higher than many regional peers and reflects multiple structural factors:
The wide interest rate spread has significant implications for Tanzania's economic development:
| Spread Component | Estimated Contribution | Description |
|---|---|---|
| Credit Risk Premium | 2.5 - 3.0% | NPL provisioning and default risk |
| Operational Costs | 2.0 - 2.5% | Branch networks, staff, technology |
| Regulatory Costs | 0.8 - 1.2% | Reserve requirements, compliance |
| Bank Profit Margin | 1.5 - 2.0% | Return on equity for shareholders |
| Total Spread | ~7.20% | Aggregate intermediation margin |
A critical dimension of Tanzania's interest rate landscape is the significant disparity between Tanzanian Shilling (TZS) and foreign exchange (FX) denominated loans. This currency-based rate differential has important implications for borrower access, currency risk, and financial inclusion.
| Currency | Average Lending Rate (%) | Rate Differential | Primary Borrower Segment |
|---|---|---|---|
| Tanzanian Shilling (TZS) | 16.85% | — | Domestic SMEs, individuals, local businesses |
| US Dollar (USD) | 8.45% | -8.40% | Export-oriented firms, multinationals |
| Euro (EUR) | 7.95% | -8.90% | European trading partners, large corporates |
| Other Foreign Currencies | 8.20% | -8.65% | Specialized international trade |
| Average TZS Premium over FX: +8.40 to 8.90 percentage points | |||
The 8.40-8.90 percentage point premium on TZS-denominated loans compared to FX loans reflects several fundamental economic factors:
Despite lower FX rates, borrowers without FX revenues face significant currency mismatch risks. A TZS depreciation could dramatically increase the effective cost of FX-denominated debt in local currency terms, potentially leading to defaults.
The currency-based rate differential creates both opportunities and risks that borrowers must carefully navigate:
| Borrower Type | Revenue Currency | Recommended Loan Currency | Primary Consideration |
|---|---|---|---|
| Export Companies | Primarily USD/EUR | Foreign Currency (USD/EUR) | Natural hedge; lower rates |
| Import-Dependent Manufacturers | TZS with FX costs | Mixed/Hedged Strategy | Partial currency matching |
| Domestic Retailers/Services | 100% TZS | Tanzanian Shilling (TZS) | Avoid currency mismatch |
| Tourism Operators | Significant USD income | Foreign Currency (USD) | Revenue-currency alignment |
| Real Estate Developers | TZS | Tanzanian Shilling (TZS) | Long-term TZS cash flows |
| Agricultural Exporters | USD from exports | Foreign Currency (USD) | Natural hedge on exports |
Understanding Tanzania's interest rate developments requires examining the monetary policy framework set by the Bank of Tanzania (BoT). Despite accommodative policy rates, the transmission to retail banking rates has been incomplete, revealing structural challenges in the monetary policy transmission mechanism.
| Policy Instrument | Rate (%) | Policy Stance | Intended Impact |
|---|---|---|---|
| Central Bank Rate (CBR) | 5.75% | Accommodative | Anchor short-term interbank rates |
| Discount Rate | 7.00% | Accommodative | Emergency liquidity facility |
| Lombard Rate | 9.00% | Penalty Rate | Overnight lending ceiling |
| Interbank Cash Market Rate (Average) | 6.20% | Market-Determined | Short-term bank liquidity |
| Treasury Bill Rate (91-day) | 6.85% | Benchmark | Risk-free rate anchor |
| Commercial Bank Lending Rate (Average) | 15.41% | High | Retail credit pricing |
Despite the Bank of Tanzania maintaining a low and stable Central Bank Rate at 5.75%, retail lending rates remain elevated at 15.41%, revealing a transmission gap of approximately 9.66 percentage points.
| Period | CBR (%) | Avg. Lending Rate (%) | Transmission Gap | Economic Context |
|---|---|---|---|---|
| Q1 2024 | 6.00% | 15.65% | 9.65% | Post-COVID recovery phase |
| Q2 2024 | 5.75% | 15.52% | 9.77% | Accommodative easing begins |
| Q3 2024 | 5.75% | 15.38% | 9.63% | Stable inflation environment |
| Q4 2024 | 5.75% | 15.25% | 9.50% | Gradual transmission improvement |
| Q1-Q3 2025 | 5.75% | 15.18% | 9.43% | Continued stability |
| Q4 2025 (Dec) | 5.75% | 15.41% | 9.66% | Slight reversal in transmission |
The weak monetary policy transmission mechanism has important implications for Tanzania's economic development strategy:
Monetary policy alone cannot deliver lower borrowing costs. Tanzania needs a comprehensive approach combining accommodative monetary policy with structural reforms in the banking sector, legal frameworks, and financial infrastructure. Only then will policy rate cuts meaningfully translate into lower lending rates for businesses and households.
This comprehensive analysis of Tanzania's interest rate developments in December 2025 reveals a complex picture of accommodative monetary policy coexisting with structural challenges in credit markets. While economic fundamentals remain robust, the financial sector faces persistent inefficiencies that limit credit access and affordability.
| Dimension | Current Status | Assessment | Impact on Economy |
|---|---|---|---|
| Lending Rates | 15.41% average | High but Stable | Constrains SME credit access and investment |
| Deposit Rates | 8.21% average | Low | Discourages savings mobilization |
| Interest Rate Spread | 7.20 percentage points | Excessively Wide | Signals high intermediation costs and limited competition |
| Currency Rate Gap | TZS 8.4% premium over FX | Very Wide | Creates currency mismatch risks; advantages FX earners |
| Monetary Policy | CBR 5.75% | Accommodative | Supports growth but transmission is weak |
| Policy Transmission | 9.66% gap to retail rates | Weak | Limits effectiveness of monetary policy |
| Real Returns (Savers) | Savings: -0.43% real | Negative/Minimal | Pushes savers toward alternative assets |
| Credit Growth | Strong YoY expansion | Positive | Supports economic activity despite high rates |
| Inflation Control | 3.6% (within 3-5% target) | Well-Controlled | Creates stable macroeconomic environment |
In December 2025, Tanzania's interest rates featured high lending (~15.41%) and low deposit (~8.21%) levels despite accommodative conditions (CBR 5.75%, strong credit growth). The wide spread and partial transmission limit credit affordability, particularly for SMEs and non-FX earners, underscoring the need for structural financial sector reforms beyond monetary policy tools alone.
| Stakeholder Group | Primary Impact | Opportunities | Risks/Challenges |
|---|---|---|---|
| Small & Medium Enterprises | High borrowing costs (15-17%) |
• Explore development finance • Leverage fintech alternatives • Build strong credit profiles |
• Limited expansion capital • Potential debt stress • Competitive disadvantages |
| Export-Oriented Businesses | Access to cheaper FX loans (8-8.5%) |
• Natural currency hedge • Cost advantage vs competitors • Expansion financing |
• FX volatility risks • International competition • Commodity price exposure |
| Individual Savers | Low real returns on deposits |
• Fixed deposits (9.2%) • Treasury bills/bonds • Diversified portfolios |
• Inflation erosion • Limited saving incentives • Financial literacy gaps |
| Commercial Banks | Wide spreads generate strong margins |
• Profitable operations • Expansion potential • Digital transformation |
• NPL management • Fintech competition • Regulatory pressure |
| Foreign Investors | Complex interest rate environment |
• FX loan advantages • Treasury bill yields • Growing market |
• Currency risks • Repatriation concerns • Political economy factors |
| Government/Policymakers | Weak policy transmission limits tools |
• Structural reform agenda • Financial inclusion gains • Economic growth support |
• Limited monetary effectiveness • Credit access constraints • Financial stability risks |
Based on current trends and structural dynamics, several scenarios could unfold in Tanzania's interest rate environment: