Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

Rising Lending Rates, Strengthened Reserves, and Targeted Credit Growth

The East African Community (EAC) is experiencing notable shifts in monetary and financial trends, with lending rates rising across several member states, a robust 8.9% growth in money supply, and increased credit allocation to key sectors such as agriculture and manufacturing. These trends reflect the region’s efforts to balance inflation control, liquidity expansion, and economic development.

  1. Treasury Bill Rates:
    • Tanzania saw a decline in its 91-day Treasury bill rate from 9.1% in Q4 2023 to 8.2% in Q1 2024, while Kenya's rate rose from 15.7% to 16.7% in the same period.
    • Rwanda's rate slightly declined by 1%, while Burundi experienced an increase from 5.6% to 6.2%​.
  2. Lending Rates:
    • In Q1 2024, lending rates across the EAC were high, with Uganda and Rwanda recording rates of 17.3% and 16.6%, respectively, while Kenya saw the highest increase, up 11.3% from the previous quarter​.
  3. Deposit Rates:
    • Kenya's deposit rates increased from 10.1% to 10.5%, while South Sudan and Uganda saw decreases by 6% and 5%, respectively​.
  4. Broad Money Supply (M3):
    • Broad money (M3) grew by 8.9% year-over-year, reaching USD 78 billion in Q1 2024. This growth was largely supported by a 17.2% increase in foreign currency deposits, highlighting stronger dollar reserves across the region​.
  5. Credit to the Private Sector:
    • Credit to the private sector in the EAC region grew by 8.8% from the previous quarter, with substantial allocations to sectors like agriculture, manufacturing, and construction, which saw increases of 28% and 8%, respectively​.

The monetary and financial statistics for the EAC with key insights into the region's economic and financial health:

  1. Rising Lending Rates and Borrowing Costs:
    • The increase in lending rates across several EAC countries, particularly in Kenya, Rwanda, and Uganda, reflects tightening monetary conditions. This trend may be aimed at controlling inflation, but it also indicates higher borrowing costs for businesses and consumers, which could impact investment and spending.
  2. Broad Money Supply and Reserve Strengthening:
    • The significant growth in broad money supply (M3) by 8.9% signals an increase in overall liquidity within the EAC economies. A notable rise in foreign currency deposits reflects strengthening reserves, likely contributing to greater currency stability and resilience against external financial shocks.
  3. Selective Growth in Deposit Rates:
    • The varying changes in deposit rates, with some countries like Kenya experiencing increases while others see decreases, suggest divergent monetary policy strategies within the EAC. Countries facing higher inflation or currency pressures may be offering better rates to attract savings, while others may prioritize economic activity over savings.
  4. Credit Growth to Productive Sectors:
    • The notable increase in credit to sectors like agriculture, manufacturing, and construction underscores the EAC’s focus on supporting essential economic sectors. This shift not only helps stimulate economic growth but also aligns with development goals aimed at boosting productivity, food security, and infrastructure.
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