The Bank of Tanzania’s August 2025 review shows that lending and deposit rates continued to adjust in response to the accommodative monetary policy stance. Lending rates eased slightly, with the overall rate at 15.16% in July 2025 (down from 15.23% in June), while short-term lending declined to 15.51% and negotiated prime customer loans to 12.56%. On the deposit side, rates for time deposits increased modestly, with the 12-month rate reaching 9.88%, while negotiated deposits for large savers fell to 10.72%. The spread between short-term lending and deposit rates narrowed to 5.63 percentage points from 6.66 points a year earlier, signaling lower borrowing costs relative to savings returns and supporting private sector credit growth of 15.9% annually.

1. Lending Interest Rates

• Overall lending rate:
  • 15.16% in July 2025, slightly lower than 15.23% in June 2025.
• Short-term lending rate (≤ 1 year):
  • 15.51% in July 2025, down from 15.69% in June 2025.
• Negotiated lending rate (prime customers):
  • 12.56% in July 2025, down from 12.68% in June 2025.
• Trend: Lending rates are easing slightly, reflecting improved liquidity and accommodative monetary policy (CBR cut to 5.75%).

2. Deposit Interest Rates

• Overall deposit rate:
  • 8.83% in July 2025, up from 8.74% in June 2025.
• 12-month deposit rate:
  • 9.88% in July 2025, up from 9.79% in June 2025.
• Negotiated deposit rate (large depositors):
  • 10.72% in July 2025, down from 11.21% in June 2025.
• Savings deposit rate:
  • 2.90%, unchanged from June 2025.
• Trend: Deposit rates have been slightly increasing for time deposits, but declining for large negotiated deposits.

3. Interest Rate Spread

• The spread between short-term lending and deposit rates narrowed to 5.63 percentage points in July 2025, compared to 6.66 percentage points in July 2024.
• This indicates reduced borrowing costs relative to deposit returns, which can stimulate credit growth.

Table: Lending and Deposit Interest Rates (July 2025)

Economic Implications of Lending and Deposit Interest Rates – July 2025

1. Lending Interest Rates

• Slight Decline: The overall lending rate eased to 15.16% from 15.23%, short-term rates (≤ 1 year) dropped to 15.51% from 15.69%, and negotiated rates for prime customers fell to 12.56% from 12.68%.
• Economic Meaning: This modest reduction aligns with the BOT's CBR cut and improved liquidity (e.g., TZS 758.8 billion in reverse repo operations), lowering borrowing costs for businesses and households. The decline, though small, signals policy transmission, encouraging investment and consumption—key drivers of Tanzania's projected 6% GDP growth. Lower short-term rates (15.51%) support working capital needs, while the negotiated rate drop (12.56%) benefits creditworthy firms, potentially boosting sectors like agriculture and manufacturing (supported by food stock increases to 485,930.4 tonnes). However, rates remain high relative to inflation (3.3%), suggesting banks are cautious about risk, possibly due to lingering global uncertainties noted in the global section.

2. Deposit Interest Rates

• Mixed Trends: The overall deposit rate rose to 8.83% from 8.74%, with the 12-month rate increasing to 9.88% from 9.79%, while the negotiated rate for large depositors fell to 10.72% from 11.21%, and savings rates stayed at 2.90%.
• Economic Meaning: The rise in time deposit rates (e.g., 9.88% for 12 months) reflects banks' efforts to attract longer-term savings amid robust M3 growth (19.9%), ensuring liquidity for lending. This competition for funds supports financial deepening, aligning with Tanzania's goal of mobilizing domestic resources (e.g., savings up 18.7% annually). The decline in negotiated rates (10.72%) for large depositors suggests banks are adjusting terms for institutional clients, possibly to manage excess liquidity. Stable savings rates (2.90%) indicate limited incentives for short-term savings, directing funds toward higher-yield investments or consumption, which could fuel demand-led growth.

3. Interest Rate Spread

• Narrowing Gap: The spread between short-term lending and deposit rates narrowed to 5.63 percentage points in July 2025 from 6.66 points in July 2024, reflecting a more balanced cost-benefit for borrowers.
• Economic Significance: A shrinking spread (from 6.66% to 5.63%) enhances borrowing affordability, stimulating credit demand (e.g., private sector credit at 15.9%). This supports the BOT's growth objective, as lower relative borrowing costs can spur business expansion and job creation. However, the spread remains wide compared to advanced economies (typically 2-3%), indicating banks are still prioritizing profitability, possibly due to high operational costs or non-performing loans. This could limit the pace of credit growth unless offset by further policy easing.

Summary of Broader Economic Significance

• Growth and Investment Boost: The easing lending rates and narrowing spread create a more favorable borrowing environment, supporting the BOT's credit growth target (15.9% achieved) and aligning with GDP growth projections. Rising deposit rates for time deposits enhance savings mobilization, providing a stable funding base for banks.
• Policy Effectiveness: The trends reflect successful monetary policy transmission, with the CBR cut and liquidity injections (e.g., reverse repos) influencing rates, though the high base rates suggest room for further easing to match inflation.
• Potential Challenges: High lending rates (above 15%) could deter small borrowers, while the mixed deposit rate trends might signal uneven liquidity management. In a regional context (e.g., EAC inflation within 8%), Tanzania's rate dynamics support stability but require monitoring to avoid overheating risks.
• Comparative Insight: Compared to 2024's wider spreads (6.66%), the 2025 narrowing aligns with global easing trends (e.g., stable oil at USD 69.2/barrel), positioning Tanzania favorably for investment inflows.