In May 2025, the Bank of Tanzania’s medium-term inflation target of 5% remains a cornerstone for fostering sustainable economic development, balancing price stability with robust growth. According to the "Monthey Economic Review," headline inflation stood at a stable 3.2% in April 2025, down from 3.3% in March, aligning well within the 5% target and regional benchmarks of the East African Community (EAC) and Southern African Development Community (SADC). However, challenges persist with food inflation rising to 5.3% due to weather-induced supply volatility, prompting the National Food Reserve Agency (NFRA) to bolster food stocks to 557,228 tonnes, up from 340,102 tonnes in April 2024, and release 29,834 tonnes of maize to stabilize markets. The Central Bank Rate (CBR) held steady at 6%, supporting economic activity while addressing global uncertainties, such as a projected 2.8% global growth rate and a 6.7% decline in crude oil prices. This introduction explores how these figures reflect Tanzania’s efforts to maintain economic stability and the challenges in sustaining the 5% inflation target.

Alignment with Sustainable Economic Development Objectives

The Bank of Tanzania’s monetary policy objectives, are to maintain price stability (defined as a low and stable inflation rate over time) and support economic growth. The 5% medium-term inflation target aligns with these goals in the following ways:

1. Price Stability for Economic Predictability:
   • A stable inflation rate of around 5% fosters predictability in the economy, which is critical for sustainable development. Low and stable inflation ensures that businesses and consumers can plan investments and expenditures without the uncertainty of volatile price changes.
   • Figure: The document notes that headline inflation in April 2025 was 3.2%, well within the 5% target. This indicates that the Bank’s policy has been effective in maintaining inflation below the medium-term goal, creating a stable environment for economic planning.
   • By keeping inflation within the East African Community (EAC) and Southern African Development Community (SADC) benchmarks, Tanzania enhances its regional competitiveness, attracting investment and supporting trade integration, which are vital for long-term growth.
2. Supporting Economic Growth:
   • The 5% target strikes a balance between controlling inflation and allowing room for economic expansion. Excessively low inflation could stifle growth by limiting monetary flexibility, while high inflation erodes purchasing power and deters investment.
   • Figure: The Monetary Policy Committee’s decision to maintain the Central Bank Rate (CBR) at 6% in April 2025 reflects a strategy to support economic activities while keeping inflation in check. The document states this decision aims to maintain inflation within the 3.5% medium-term target (short-term adjustment) and smooth exchange rate volatility, which supports growth by stabilizing the cost of imports and exports.
   • Stable inflation supports consumer purchasing power, as evidenced by the decline in core inflation to 2.2% in April 2025 from 3.9% in April 2024. This reduction in underlying price pressures enhances affordability, boosting consumption and economic activity.
3. Food Security and Cost of Living:
   • Sustainable economic development requires affordable access to basic goods, particularly food. The 5% inflation target helps manage food inflation, which rose to 5.3% in April 2025, driven by high staple food crop prices due to weather-induced supply volatility. By aiming to keep overall inflation at 5%, the Bank mitigates the risk of runaway food prices, which could disproportionately affect low-income households.
   • Figure: The National Food Reserve Agency (NFRA) increased food stocks to 557,228 tonnes by April 2025 from 340,102 tonnes in April 2024, supporting food price stabilization. This aligns with the inflation target by ensuring supply-side interventions complement monetary policy, fostering inclusive growth.
4. Exchange Rate Stability and External Sector:
   • A stable inflation rate supports exchange rate stability, which is crucial for Tanzania’s external sector performance and economic development. The document highlights the Bank’s focus on smoothing exchange rate volatility, which reduces uncertainty for exporters and importers.
   • Figure: The global economic context, including a 6.7% decline in crude oil prices, could ease pressure on Tanzania’s import bill, supporting the external sector. Maintaining inflation at 5% ensures that exchange rate stability translates into predictable costs for trade, fostering export-led growth and foreign exchange reserve accumulation (e.g., leveraging gold exports, with prices at USD 3,000 per troy ounce in April 2025).

Challenges in Maintaining the 5% Inflation Target

Despite the alignment with sustainable development, maintaining the 5% inflation target poses several challenges, as inferred from the document’s data and context:

1. Food Price Volatility:
   • Challenge: Food inflation rose to 5.3% in April 2025, exceeding the 5% target. The document attributes this to weather-induced supply volatility and logistics challenges, which are difficult to control through monetary policy alone.
   • Impact: High food inflation, as a significant component of the Consumer Price Index (CPI), could push headline inflation above the target, undermining purchasing power and economic stability. For example, Non-core inflation (including food) rising to 5.7% in April 2025, indicating persistent pressure from volatile components.
   • Mitigation: The NFRA’s release of 29,834 tonnes of maize helps stabilize supply, but sustained weather disruptions could require structural agricultural investments beyond monetary policy.
2. Global Economic Uncertainties:
   • Challenge: The document notes a projected global growth slowdown to 2.8% in 2025 and trade uncertainties due to U.S. tariffs. These external shocks could affect Tanzania’s export markets and commodity prices (e.g., tea and sugar prices rose by 8.2% and 3.9%, respectively), indirectly influencing domestic inflation.
   • Impact: External price pressures could make it challenging to maintain the 5% target, especially if import costs rise or export revenues decline, affecting the balance of payments and exchange rate stability.
   • Mitigation: Diversifying export markets and strengthening foreign exchange reserves (e.g., through gold exports) could help, but global volatility remains a significant risk.
3. Energy and Fuel Price Fluctuations:
   • Challenge: Although energy, fuel, and utilities inflation eased to 7.3% in April 2025 from 9.3% in April 2024 month-on-month fluctuations (e.g., 2.4% in April 2024, 1.9% in April 2025). These fluctuations could destabilize inflation if global oil prices reverse their 6.7% decline.
   • Impact: Energy price spikes could increase production and transportation costs, pushing inflation above the 5% target and hindering industrial development.
   • Mitigation: The Bank’s data-dependent monetary policy adjustments can respond to such shocks, but reliance on global commodity markets limits control.
4. Balancing Growth and Inflation Control:
   • Challenge: The document emphasizes the Bank’s dual mandate of price stability and supporting economic growth. Tightening monetary policy to curb inflation (e.g., raising the CBR above 6%) could slow economic activity, while loosening it risks inflation exceeding 5%.
   • Impact: For example, core inflation’s decline to 2.2% suggests room for accommodative policy, but rising non-core inflation (5.7% in April 2025, could force tighter measures, potentially constraining investment and growth.
   • Mitigation: The Bank’s use of instruments like repurchase agreements and the Lombard facility allows flexibility, but aligning these tools with growth objectives requires precise calibration.
5. Structural Constraints:
   • Challenge: Logistics challenges and supply-side issues, as noted in the document, contribute to price volatility. These structural factors are not directly addressed by monetary policy, limiting the Bank’s ability to maintain the 5% target.
   • Impact: Persistent supply chain inefficiencies could keep food and non-core inflation elevated, as seen in the 5.3% food inflation rate, challenging the target and affecting living standards.
   • Mitigation: Complementary fiscal policies, such as infrastructure investments, are needed to address these constraints, but coordination between monetary and fiscal authorities can be complex.

Conclusion

The Bank of Tanzania’s 5% medium-term inflation target aligns with sustainable economic development by fostering price stability, supporting economic growth, ensuring food affordability, and stabilizing the external sector. Figures from the document, such as the 3.2% headline inflation, 2.2% core inflation, and 557,228 tonnes of NFRA food stocks in April 2025, demonstrate the Bank’s success in maintaining a stable economic environment conducive to development. However, challenges like food price volatility (5.3% food inflation), global economic uncertainties (2.8% global growth forecast), energy price fluctuations (7.3% energy inflation), and structural constraints could push inflation above the target, risking economic stability. Addressing these challenges requires a combination of monetary policy precision, supply-side interventions, and regional cooperation to ensure sustainable development.

The table includes critical data points on inflation, monetary policy, food security, and external sector performance, as these are central to understanding the alignment and challenges discussed in the previous response.

Table: Key Economic Figures for Tanzania (May 2025 Economic Review)

Notes on the Table

• Inflation Figures: These highlight the stability of headline inflation (3.2% in April 2025) within the 5% medium-term target, but food inflation (5.3%) and non-core inflation (5.7%) exceed the target, posing challenges.
• Monetary Policy: The CBR at 6% and the 5% medium-term target reflect efforts to balance price stability and growth, with the short-term target of 3.5% indicating flexibility in policy adjustments.
• Food Security: The significant increase in NFRA food stocks (from 340,102 to 557,228 tonnes) and maize releases (29,834 tonnes) underscore efforts to stabilize food prices, supporting economic development.
• Global Context: Global growth slowdown (2.8%) and commodity price changes (e.g., crude oil -6.7%, gold USD 3,000) highlight external factors that could influence Tanzania’s inflation and external sector performance.