Overview of Tanzania's Monetary Policy

The Bank of Tanzania's primary goal in monetary policy is to maintain price stability and support economic growth. The current monetary policy framework involves several key elements:

1. Policy Rate: The central bank rate (policy rate) was maintained at 6% for the quarter ending September 2024. This decision aligns with the goal to keep inflation below the target of 5%.
2. Inflation:
   • Mainland Tanzania: Inflation remained low at 3-4% over the past year. In April and May 2024, it was recorded at 3% and 3.1% respectively.
   • Zanzibar: Inflation declined to the medium target of 5%.
3. GDP Growth:
   • Mainland Tanzania: Real GDP growth was 5.1% in 2023, up from 4.7% in 2022. The growth was driven by sectors such as agriculture, mining, quarrying, construction, and financial intermediation. The first and second quarters of 2024 showed strong growth at 5% and 5.4% respectively.
   • Zanzibar: The economy grew by 7.4% in 2023, compared to 6.8% in 2022, mainly driven by tourism-related activities, construction, and real estate.
4. Private Sector Credit Growth: Estimated at 16.4% during the second quarter of 2024, compared with 17.1% in the preceding quarter. The banking sector remained liquid, profitable, and well-capitalized, with an improved asset quality as reflected by a lower Non-Performing Loan (NPL) ratio of 4.4% in May 2024.
5. Current Account:
   • The current account deficit narrowed to USD 959.2 million in the quarter ending June 2024, from USD 977.8 million in the corresponding quarter in 2023.
   • In Zanzibar, the current account surplus increased to USD 421.5 million in the year ending June 2024, compared to USD 411.5 million in the corresponding period in 2023.
6. Foreign Exchange Reserves: Remained adequate, above USD 5 billion at the end of June 2024, covering more than 4 months of projected imports. The foreign currency liquidity improved due to increased inflows from tourism, gold, and traditional exports.
7. Exchange Rate: The exchange rate depreciated by around 2.2% in the quarter, faster than the 1.8% depreciation in the first quarter of 2024. In the retail market, the depreciation rate was around 3.2% for the quarter.

Instruments and Implementation

The Bank of Tanzania uses various monetary policy instruments, including:

• Repurchase Agreements (Repo and Reverse Repo)
• 35-day and 91-day Treasury Bills
• Statutory Minimum Reserve Requirement Ratio (SMR)
• Sale or Purchase of Foreign Currency in the Interbank Foreign Exchange Market
• Standing Lending Facilities (Intraday and Lombard Loan Windows)

These instruments help to align the operating target variable (7-day interbank interest rate) along the policy rate. The implementation is characterized by high transparency, with regular communication of MPC decisions to banks and the public.

The monetary policy implementation during April-June 2024 was deemed successful, with the 7-day interbank rate staying within +/- 200 basis points of the policy rate and showing improvement compared to the preceding quarter.

The bank also aims to improve the money market through reforms such as the ‘Frontclear’ umbrella guarantee facility, reviewing the collateral framework for government securities, the regulatory framework for liquid assets eligibility, and the pricing framework for monetary policy instruments.