Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

Tanzania's monetary policy in the fourth quarter of 2024 demonstrated a strategic approach to sustaining economic growth while maintaining price stability. The Bank of Tanzania (BoT) maintained a stable policy stance, supporting key sectors like agriculture, manufacturing, and construction through robust private sector credit growth. Effective liquidity management and moderate adjustments in interest rates highlighted the central bank’s commitment to fostering macroeconomic stability and inclusive economic activity.

Central Bank Rate (CBR) and Policy Stance

Liquidity Conditions and Interbank Markets

1. Bank Liquidity

2. Monetary Injections

Monetary Aggregates Growth

1. Extended Broad Money Supply (M3)

2. Private Sector Credit

Sectoral Credit Distribution

  1. Agriculture:
    • Recorded the highest growth in credit at 44.7%, reflecting strong support for rural and agricultural activities.
  2. Manufacturing:
    • Credit growth reached 18.7%, aiding industrial expansion.
  3. Building and Construction:
    • Growth at 18.6%, indicative of sustained infrastructure investment.
  4. Personal Loans:
    • Comprising 38.2% of the total loan portfolio, largely benefiting SMEs.
  5. Trade:
    • Represented 12.7% of the loan portfolio.
  6. Agriculture (overall share):
    • Accounted for 12% of total loans, emphasizing its importance in Tanzania’s economy.

Interest Rate Developments

  1. Overall Lending Rate:
    • Increased to 15.67% from 15.53%, signaling slight tightening.
  2. Negotiated Lending Rate:
    • Remained stable at 12.93%, aiding business planning.
  3. Overall Deposit Rate:
    • Increased to 8.25% from 8.20%, enhancing savings attractiveness.
  4. Negotiated Deposit Rate:
    • Rose significantly to 10.27% from 9.12%, reflecting better returns for large depositors.

Key Observations

  1. Price Stability:
    • Despite tighter liquidity in October, the monetary policy maintained overall price stability.
  2. Support for Growth:
    • The growth in M3 and private sector credit illustrates that monetary policy supported economic activity effectively.
  3. Balanced Approach:
    • The policy successfully managed liquidity and ensured sufficient credit flow, particularly to productive sectors like agriculture and manufacturing.
  4. Macroeconomic Stability:
    • BoT’s monetary policy ensured stable inflation, sustainable economic growth, and reasonable interest rates.

This multi-dimensional approach highlights the effectiveness of Tanzania’s monetary policy in fostering both macroeconomic stability and sectoral growth.

Tanzania's monetary policy in the fourth quarter of 2024 with key insights about the country's economic environment and the effectiveness of its central bank actions.

1. Policy Stability and Support for Economic Growth

2. Effective Liquidity Management

3. Strong Credit Growth

4. Interest Rate Dynamics

5. Expansion in Monetary Aggregates

6. Focus on Key Sectors

7. Macroeconomic Balance

Conclusion

Tanzania's monetary policy in Q4 2024 reveals a proactive central bank addressing both short-term challenges (like seasonal liquidity tightness) and long-term goals (sectoral growth, price stability, and financial inclusion). It highlights an economy growing steadily, with sound monetary management ensuring stability and opportunity for diverse sectors.

Global growth faces multiple risks, including geopolitical tensions, which may disrupt trade and raise energy prices beyond $84 per barrel in 2024. Trade fragmentation could slow expected trade growth to below 2.5%, while persistent inflation, projected at 3.5% in 2024, might force central banks to maintain high interest rates of around 4% through 2026, dampening investment. Additionally, 40% of EMDEs are at risk of debt distress, with tightening global financing further constraining growth. Climate-related disasters and slower growth in key economies, like China, also pose significant threats to recovery. Conversely, faster disinflation and stronger U.S. growth offer potential upside.

1. Geopolitical Tensions

2. Trade Fragmentation

3. Inflationary Pressures

4. Higher-for-Longer Interest Rates

5. Debt Vulnerability and Fiscal Stress

6. Climate-Related Natural Disasters

7. Slower Growth in Key Economies

8. Upside Risk: Faster Disinflation and Stronger Growth in the U.S.

Key Figures:

Summary of Risks to Global Growth:

Source: Global Economic Prospects June 2024 report

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