The Tanzania Shilling achieved a dramatic turnaround in June 2025, strengthening to TZS 2,631.56 per USD from TZS 2,698.42 in May, marking a remarkable shift from chronic depreciation to currency appreciation. This performance represented a stunning reversal of fortunes, with the annual depreciation rate plummeting from a concerning 12.5% in June 2024 to just 0.21% in June 2025—a 60-fold improvement that positioned the shilling among the best-performing African currencies. The stabilization was underpinned by robust seasonal foreign exchange inflows, including gold exports worth USD 3.66 billion and tourism receipts of USD 3.83 billion from 2.2 million visitors, while enhanced interbank foreign exchange market liquidity saw turnover increase to USD 121.50 million in June from USD 110.8 million in May. Critically, the Bank of Tanzania's intervention needs dropped dramatically to just USD 6.3 million in net sales compared to USD 53 million in May, demonstrating market-driven stability that coincided with inflation remaining controlled at 3.3%—well within the 3-5% target range—despite food price pressures, as the stronger currency helped offset imported inflation and contributed to energy inflation declining from 6.1% to 2.1%.

1. Tanzania Shilling Strengthening: Key Performance Indicators

In June 2025, the Tanzania Shilling (TZS) demonstrated remarkable resilience, strengthening significantly against major currencies with the exchange rate averaging TZS 2,631.56 per USD, representing a substantial improvement from TZS 2,698.42 in May 2025. This performance marked a dramatic turnaround, with the annual depreciation rate plummeting to just 0.21% from 3.82% in May and a concerning 12.5% in June 2024. Recent data indicates the shilling's continued strength, with the USD/TZS exchange rate falling to 2,470.0000 on August 7, 2025, and the Tanzania Shilling strengthening 6.44% over the past month.

Key Drivers of Currency Stabilization:

A. Seasonal Foreign Exchange Inflows:

• Cash Crop Export Surge: The onset of Tanzania's primary cash crop export season provided substantial foreign exchange supply, with traditional exports including cashew nuts, coffee, and tobacco showing robust performance
• Gold Export Earnings: Gold exports reached USD 3.66 billion, contributing significantly to foreign exchange reserves and supporting currency stability
• Agricultural Performance: Enhanced agricultural productivity supported both domestic food security and export earnings

B. Enhanced Interbank Foreign Exchange Market (IFEM) Liquidity:

• Increased Market Turnover: Foreign exchange turnover in IFEM reached USD 121.50 million in June 2025, compared to USD 110.8 million in May, indicating improved market depth and liquidity
• Reduced Central Bank Intervention: The Bank of Tanzania's intervention decreased dramatically to only USD 6.3 million in net sales during June, down from USD 53 million in May, demonstrating market-driven stability
• Market Confidence: Reduced intervention reflects improved market confidence and natural supply-demand equilibrium

C. Robust External Sector Performance:

• Export Growth: Tourism recorded significant growth, with 2.2 million tourists visiting Tanzania and injecting $3.83 billion into the economy, while overall exports reached USD 16.93 billion with a year-on-year growth of 17.7%
• Diversified Revenue Streams: Tanzania largely depends on tourism earnings and exports of gold and traditional crops for its foreign exchange earnings, providing multiple sources of foreign currency inflows
• Import Coverage: Strong foreign exchange reserves covering approximately 4.8 months of imports enhanced external sector resilience

2. Inflation Dynamics and Currency Interaction

Inflation Trends:

Marginal Inflation Increase: Headline inflation rose slightly to 3.2% in February 2025, up from 3% in the corresponding period in 2024, with June 2025 recording 3.3% compared to 3.2% in May. The increase was primarily attributed to:

• Food Price Pressures: Surging prices of staple foods including maize flour, millet flour, beef, and fish
• Unprocessed Food Inflation: Climbing to 8.6%, reflecting seasonal and supply chain factors
• Beverage Price Increases: Non-alcoholic beverage prices contributing to overall inflation pressure

Mitigating Currency Effects:

• Import Cost Reduction: The stronger shilling reduced imported inflationary pressures, particularly affecting petroleum products and manufactured goods
• Energy Sector Stabilization: Energy, fuel, and utilities inflation declined from 6.1% to 2.1%, partly due to both falling global oil prices and reduced import costs from currency appreciation
• Inflation Target Compliance: Headline inflation averaged 3.2 percent, remaining within the target of three percent to five percent and consistent with the convergence criteria for regional economic integration

3. Monetary Policy and Economic Stability Framework

Central Bank Policy Stance:

• Interest Rate Stability: The Bank of Tanzania maintained the Central Bank Rate (CBR) at 6%, providing policy anchor and supporting interbank market stability
• Prudent Monetary Management: Inflation rates remained low, a situation the central bank attributes to prudent monetary policy and a continued moderation in non-food and energy prices
• Market Confidence: Steady policy stance anchored inflation expectations and maintained financial sector stability

External Reserves and Liquidity:

• Reserve Adequacy: Foreign exchange reserves of approximately USD 5.97 billion provided coverage for 4.8 months of imports, exceeding international adequacy benchmarks
• Liquidity Management: Enhanced interbank market functioning reduced volatility and supported currency stability
• Risk Mitigation: Adequate reserves provided buffer against external shocks and supported investor confidence

4. Economic Growth and Sectoral Performance

GDP Growth Trajectory:

• Robust Economic Performance: Mainland Tanzania's GDP grew 5.6% in Jan-Sep 2024, estimated at 5.6% for the full year, with projections for continued growth
• Sectoral Drivers: Real GDP grew 5.3% in 2023, up from 4.7% in 2022, driven by agriculture, construction, and manufacturing on the supply side and private investments on the demand side
• Long-term Outlook: Tanzania is projected to grow at an average rate of around 6% over the long-term

Export Performance:

• Agricultural Exports: Tanzania's January 2025 economic review highlights a 15.1% export growth driven by gold, cashew nuts, and tourism
• Mining Sector: Gold exports registered an annual increase of 7% to USD 2,859.6 million in previous periods, with continued strong performance
• Tourism Recovery: Significant tourism revenue contribution supporting service sector growth and foreign exchange earnings

5. Implications for Overall Economic Stability

Positive Stability Indicators:

A. Price and Monetary Stability:

• Inflation Control: Headline inflation consistently maintained within the 3-5% national target range, supporting purchasing power and economic planning
• Regional Convergence: Inflation rates aligned with East African Community (EAC) and Southern African Development Community (SADC) convergence criteria
• Monetary Credibility: Consistent central bank policy enhanced institutional credibility and market confidence

B. External Sector Resilience:

• Balance of Payments: Strong export performance and tourism earnings improved current account dynamics
• Currency Stability: Reduced exchange rate volatility lowered business uncertainty and import costs
• Investment Climate: Public debt levels remain nevertheless contained at around half of GDP, supporting macroeconomic stability

C. Financial Sector Development:

• Credit Growth: Private sector credit expanded by 12.8%, supporting business investment and economic expansion
• Market Liquidity: Enhanced foreign exchange market functioning improved financial intermediation
• Banking Stability: Reduced currency risk supported banking sector performance and lending capacity

Growth Support Mechanisms:

• Business Environment: Stable exchange rates reduced uncertainty for traders, manufacturers, and investors, supporting long-term planning
• Investment Incentives: Controlled inflation and currency stability attracted both domestic and foreign investment
• Purchasing Power: Real income protection through inflation control sustained consumer demand and economic momentum

Summary Assessment

Conclusion

The stabilization of the Tanzania Shilling in June 2025 represents a confluence of positive economic fundamentals, including robust seasonal export inflows from gold and agricultural commodities, enhanced foreign exchange market liquidity, and prudent monetary policy management. The Tanzania Shilling has strengthened 6.44% over the past month, and is up by 8.34% over the last 12 months, demonstrating sustained improvement in currency performance.

This currency strength, combined with controlled inflation averaging 3.2-3.3% within the target range, has created a stable macroeconomic environment supporting Tanzania's economic growth trajectory. The reduced need for central bank intervention, strong external reserves, and diversified export base provide a solid foundation for continued currency stability and economic expansion, positioning Tanzania favorably for sustained development and regional economic integration objectives.

Key Figures Table

Tanzania’s inflation trends in May 2025 reflect a stable but nuanced economic environment. Headline inflation at 3.2% is well within regional and national targets, supported by declining non-food and core inflation (2.1%). However, rising food inflation (5.6%), driven by supply-demand imbalances and higher staple food prices, is a growing concern. The decline in energy inflation (6.1%) due to falling charcoal and petroleum prices has helped balance overall inflation. Government interventions, particularly the NFRA’s release of 47,238 tonnes of food and increased stocks to 509,990 tonnes, demonstrate effective supply-side management. In Zanzibar, lower headline inflation (4.2%) reflects improved food supply dynamics. Continued monetary policy vigilance, agricultural investment, and infrastructure improvements will be critical to sustaining inflation stability amidst global and domestic risks.

1. Headline Inflation

• Stability at 3.2%: The annual headline inflation rate in Tanzania remained steady at 3.2% in May 2025, consistent with April 2025. This stability reflects a balance between rising food prices and declining non-food inflation, keeping overall inflation within the national target range.
• Regional Benchmark Compliance: The 3.2% rate aligns with the Southern African Development Community (SADC) target of 3–7% and the East African Community (EAC) benchmark of ≤8%. This positions Tanzania as a stable performer in the region, avoiding the hyperinflationary pressures seen in some neighboring economies.
• Implications: The consistency in headline inflation suggests effective monetary policy management by the Bank of Tanzania (BoT), particularly in maintaining the Central Bank Rate (CBR) at 6% to shield the economy from external shocks like trade tariffs and geopolitical tensions. Stable inflation supports consumer purchasing power and investor confidence, critical for sustaining economic growth amidst global uncertainties.

2. Food Inflation

• Increase to 5.6%: Food inflation rose to 5.6% in May 2025, up from 5.3% in April 2025 and significantly higher than 1.6% in May 2024. This increase is a key driver of inflationary pressure in Tanzania, given the high weight of food in the Consumer Price Index (CPI) basket.
• Drivers of Food Inflation:
  • Supply-Demand Imbalances: Heavy rains disrupted transportation networks, hindering the distribution of agricultural goods. These likely caused temporary shortages, pushing up prices for staple foods.
  • Higher Staple Food Prices: Maize and rice, critical components of the Tanzanian diet, saw notable price increases. These staples are highly sensitive to supply chain disruptions and weather-related challenges, which are common in Tanzania’s rain-dependent agricultural sector.
• Context and Implications: Food inflation’s rise reflects Tanzania’s vulnerability to climatic shocks, as agriculture remains a cornerstone of the economy. The significant jump from 1.6% in May 2024 to 5.6% in May 2025 underscores the impact of seasonal and logistical challenges. This trend could strain low-income households, for whom food constitutes a large share of expenditure, potentially increasing poverty risks if unchecked.

3. Non-Food Inflation

• Decline in Non-Food Inflation: Non-food inflation decelerated in May 2025, helping to offset the rise in food inflation and stabilize headline inflation. The document does not specify the exact rate, but the decline indicates softer price pressures in categories like housing, transport, and services.
• Implications: The reduction in non-food inflation suggests stable or declining costs in imported goods, manufactured products, or services, possibly due to favorable global commodity price trends (e.g., declining petroleum prices) or effective domestic policy measures. This balance is crucial for maintaining overall inflation within target ranges, as non-food items often have a lower weight in the CPI but are sensitive to external price shocks.

4. Core Inflation

• Easing to 2.1%: Core inflation, which excludes volatile items like energy, utilities, and unprocessed food, dropped to 2.1% in May 2025 from 2.2% in April 2025. This measure reflects underlying inflationary pressures and is a key indicator for monetary policy.
• Shifting Influence: The document notes that core inflation’s share in overall inflation is shrinking, while food inflation’s influence is rising. This shift highlights the growing dominance of food prices in driving Tanzania’s inflation dynamics.
• Implications: The easing of core inflation suggests that non-volatile price pressures are well-contained, likely due to stable monetary conditions and the BoT’s efforts to keep the 7-day interbank rate within the 4–8% target band. However, the increasing influence of food inflation indicates that supply-side factors (e.g., agricultural productivity, weather) are becoming more critical to inflation management.

5. Energy, Fuel, and Utilities

• Decline to 6.1%: Inflation in the energy, fuel, and utilities category fell to 6.1% in May 2025 from 7.3% in April 2025. This decline contributed significantly to moderating overall inflation.
• Key Drivers:
  • Falling Wood Charcoal Prices: As a widely used energy source in Tanzania, particularly in rural areas, the decline in charcoal prices likely reflects improved supply or reduced demand pressures.
  • Global Petroleum Price Easing: The global commodity market saw softer crude oil prices due to weaker demand and increased OPEC+ output. This translated into lower prices for petrol, diesel, and kerosene in Tanzania, easing transport and household energy costs.
• Context and Implications: The decline in energy inflation is a positive development for Tanzania, where fuel and energy costs directly impact transport and production expenses. Lower petroleum prices reduce input costs for businesses, potentially supporting economic activity. However, reliance on wood charcoal highlights the need for sustainable energy transitions to reduce environmental impacts and price volatility.

6. Monthly Inflation Movements

• Month-on-Month Inflation at 0.1%: On a month-to-month basis, overall inflation was minimal at 0.1% in May 2025. This low rate indicates stable price movements in the short term, despite annual food inflation pressures.
• Implications: The subdued month-on-month inflation suggests that price spikes are not accelerating rapidly, giving policymakers room to monitor trends without immediate intervention. However, the annual food inflation increases warrants vigilance to prevent broader price pressures.

7. Inflation by Key Categories (Annual, May 2025)

• Analysis:
  • Food & Non-Alcoholic Beverages (5.6%): The highest inflation rate among categories, driven by supply chain disruptions and higher staple food prices. This category’s weight in the CPI basket makes it a dominant factor in headline inflation.
  • Housing, Water, Electricity, Gas (3.4%): Moderate inflation reflects stable utility costs, supported by declining energy prices. This category benefits from global petroleum trends and domestic infrastructure investments.
  • Transport (1.7%): Low inflation is likely due to falling fuel prices, which reduce transport costs. This is significant for Tanzania’s economy, where transport costs influence goods distribution.
  • Education (3.2%): Stable inflation suggests controlled fee increases, possibly due to government subsidies or regulated private sector pricing.
  • Services (1.0%): The lowest inflation rate indicates subdued price pressures in service sectors like telecommunications and personal services, possibly due to competition or technological efficiencies.
  • Goods (4.2%): Higher than services, reflecting the impact of food and imported goods prices on overall goods inflation.
• Implications: The divergence between goods (4.2%) and services (1.0%) inflation highlights the supply-side pressures on physical goods, particularly food, compared to more stable service sectors. Policymakers may prioritize addressing food supply constraints to balance inflation across categories.

8. Government Intervention

• National Food Reserve Agency (NFRA) Actions:
  • Release of 47,238 Tonnes: In May 2025, the NFRA released 47,238 tonnes of food to stabilize food prices. This intervention aimed to counter supply shortages caused by heavy rains and transportation challenges.
  • Stock Increase to 509,990 Tonnes: NFRA food stocks grew to 509,990 tonnes in May 2025, up by 170,000 tonnes from May 2024. This increase was driven by:
    • Good Harvest: Favorable agricultural output in the 2024/25 season boosted food supply.
    • Increased Funding: Enhanced government funding for grain procurement strengthened NFRA reserves.
• Implications: The NFRA’s proactive measures demonstrate a robust response to food inflation pressures. The significant stock increase provides a buffer against future supply shocks, potentially mitigating price volatility in 2025/26. However, sustained investment in agricultural infrastructure (e.g., irrigation, storage, and transport) is needed to address structural supply chain issues.

9. Zanzibar-Specific Inflation Trends

• Decline in Headline Inflation: In Zanzibar, annual headline inflation fell to 4.2% in May 2025 from 4.3% in April 2025 and 5.3% in May 2024. This decline was primarily driven by:
  • Easing Food Inflation: Food inflation dropped to 3.9% in May 2025 from 4.1% in April 2025 and 8.9% in May 2024, attributed to improved domestic production and stable imports, particularly for sugar, rice, and yellow cooking bananas.
  • Monthly Increase: Month-on-month inflation rose to 1.0% in May 2025 from 0% in April 2025, indicating short-term price pressures.
• Implications: Zanzibar’s lower inflation rate compared to May 2024 reflects successful supply-side interventions and stable import flows. The region’s reliance on tourism and imports makes it sensitive to global price trends, but improved agricultural output has helped moderate food prices. The month-on-month increase suggests ongoing monitoring is needed to prevent renewed inflationary pressures.

10. Broader Economic Context

• Global Influences: The document highlights global factors impacting Tanzania’s inflation, such as declining crude oil prices due to weaker demand and increased OPEC+ output. These trends have lowered energy costs, supporting the decline in energy and fuel inflation. However, geopolitical tensions and trade protectionism pose risks to global commodity prices, which could indirectly affect Tanzania’s import-dependent sectors.
• Monetary Policy Support: The BoT’s decision to maintain the CBR at 6% and keep the 7-day interbank rate within 4–8% has helped anchor inflation expectations. This stability is critical in a context of global economic uncertainty, as noted in the document’s discussion of the Global Economic Policy Uncertainty Index and Trade Policy Uncertainty Index.
• External Sector Performance: The narrowing of Tanzania’s current account deficit to USD 2,117.5 million in the year ending May 2025, driven by strong export performance (e.g., gold, cashew nuts), supports foreign exchange stability. This stability helps moderate imported inflation, particularly for fuel and manufactured goods.

11. Potential Risks and Outlook

• Risks:
  • Food Supply Volatility: Continued reliance on rain-fed agriculture makes Tanzania vulnerable to weather shocks, which could exacerbate food inflation.
  • Global Commodity Price Fluctuations: While petroleum prices have eased, any reversal due to geopolitical events or OPEC+ policy changes could increase energy inflation.
  • Logistical Challenges: Transportation disruptions, as seen with heavy rains, highlight the need for improved infrastructure to ensure stable food distribution.
• Outlook:
  • The BoT’s proactive monetary policy and NFRA interventions should help keep inflation within target ranges in the near term. The 509,990-tonne food stock provides a strong buffer against short-term supply shocks.
  • Investments in agriculture, as outlined in the proposed 2025/26 budget, could enhance food security and reduce inflation volatility.
  • Continued global easing of petroleum prices and stable export performance (e.g., gold, cashew nuts) will support low non-food and energy inflation, provided global uncertainties do not escalate.

Below is a structured table summarizing the key figures related to Tanzania’s inflation trends as of May 2025, drawn from the provided Bank of Tanzania. The table focuses on data from relevant sections and the narrative. The table is organized to clearly present the inflation metrics and related government interventions.

Tanzania Inflation Trends (May 2025) - Key Figures

Notes

1. Context:
   • Mainland Tanzania: The 3.2% headline inflation is within the SADC (3–7%) and EAC (≤8%) benchmarks, reflecting effective monetary policy (e.g., Central Bank Rate at 6%).
   • Food Inflation Drivers: The rise to 5.6% is due to supply-demand imbalances from heavy rains affecting transportation and higher prices for staples like maize and rice.
   • Zanzibar: The decline in inflation (4.2%) is driven by improved food supply, particularly for sugar, rice, and yellow cooking bananas.
   • NFRA Intervention: The release of 47,238 tonnes and increased stocks to 509,990 tonnes highlight proactive measures to curb food price volatility.