Lending Up Slightly (+0.11), Deposits Ease (-0.11)

In September 2025, Tanzania’s interest rate environment remained broadly stable, showing modest adjustments that reflect healthy liquidity and balanced monetary conditions. Lending rates edged upward as credit demand strengthened, while deposit rates slightly declined due to adequate liquidity in the banking system. These movements indicate a resilient financial sector, supported by controlled inflation (3.4%), robust GDP growth (6.3%), and accommodative monetary policy. The overall interactions between lending, deposit rates, and spreads point toward steady financial intermediation and sustained confidence in the economy.

1. Overview of Interest Rate Movements

In September 2025, both lending and deposit interest rates showed stability with minor fluctuations, reflecting consistent liquidity conditions in the banking system.

2. Lending Interest Rates

Key Figures (September 2025)

• Overall Lending Rate: 15.18%
• Short-term lending rate (up to 1 year): 15.52%
• Negotiated lending rate (for prime customers): 12.84%

Movement compared to August 2025

• Overall lending rate increased slightly:
  15.07% → 15.18%
• Negotiated lending rate increased:
  12.72% → 12.84%
• Short-term lending rate decreased:
  15.64% → 15.52%

3. Deposit Interest Rates

Key Figures (September 2025)

• Overall deposit rate: 8.50%
• Savings deposit rate: 2.92%
• 12-month deposit rate: 9.84%
• Negotiated deposit rate: 11.05%

Movement compared to August 2025

• Overall deposit rate decreased:
  8.61% → 8.50%
• 12-month rate decreased slightly:
  9.99% → 9.84%

4. Summary Table — Lending & Deposit Rates (September 2025)

5. Interest Rate Spread

The short-term interest rate spread (difference between 12-month lending and deposit rates) narrowed:

• 5.66 percentage points in August 2025
• 5.69 percentage points in September 2025

This indicates:

• modest convergence of cost of borrowing vs. returns on deposits
• stable financial conditions
• steady competition in the banking sector

Implications of Interest Rate Movements in September 2025

The interest rate data for September 2025, as summarized from Table 2.4.1 in the Bank of Tanzania's (BOT) Monthly Economic Review (October 2025), reflects a stable yet nuanced financial environment in Tanzania. These movements occur against a backdrop of resilient economic growth (6.3% real GDP expansion in Q2 2025, driven by agriculture, mining, construction, and financial services), low and stable inflation (3.4%, within the 3–5% target), and accommodative monetary policy (Central Bank Rate at 5.75%, with ample liquidity via reverse repo operations). Below, I outline the key implications, categorized by lending rates, deposit rates, spreads, and broader economic context.

1. Lending Rates: Signals of Steady Credit Demand and Sectoral Resilience

• Slight Overall Increase (15.07% to 15.18%): This modest uptick suggests banks are responding to robust private sector credit demand, which grew 16.1% year-on-year (y/y) in September 2025—nearly unchanged from August and a key driver of broad money supply (M3) expansion at 20.8% y/y. It aligns with the economy's strong momentum, where financial and insurance services contributed significantly to Q2 GDP growth. However, the rise is tempered, indicating controlled risk appetite amid steady inflation expectations.
• Negotiated Rate Rise (12.72% to 12.84%): Lower rates for prime borrowers (e.g., large corporates) highlight bargaining power in competitive sectors like mining and exports, which benefited from reliable power supply and global commodity price stability (e.g., declining oil but rising coffee/palm oil prices). This supports investment-led growth projected at 6% for full-year 2025.
• Short-Term Rate Decline (15.64% to 15.52%): A dip here points to easing for working capital needs, fostering short-term business activity in agriculture (a major GDP driver) and construction, where adequate food stocks (570,519 tonnes held by NFRA) and subdued energy inflation (down to 3.7% from 11.5% y/y) reduce input costs.
• Broader Implication: Real lending rates remain elevated (15.18% nominal minus 3.4% inflation ≈ 11.8% real), implying significant borrowing costs that could constrain smaller firms but encourage efficient capital allocation. This supports the BOT's goal of fostering growth without overheating, consistent with EAC/SADC convergence criteria.

2. Deposit Rates: Evidence of Improved Liquidity and Savings Incentives

• Overall Decline (8.61% to 8.50%) and 12-Month Dip (9.99% to 9.84%): These reductions reflect excess liquidity in the banking system, as the 7-day interbank rate stayed within the 3.75–7.75% corridor (occasionally below CBR). Banks face less pressure to compete aggressively for funds, thanks to monetary operations absorbing surplus via reverse repos. This liquidity surplus also boosted narrow money (M1) growth to 29.0% y/y.
• Slight Negotiated and Savings Increases (10.99% to 11.05%; 2.90% to 2.92%): Banks are still incentivizing long-term and low-risk deposits to lock in stable funding, aligning with positive real returns (e.g., 9.84% nominal minus 3.4% inflation ≈ 6.4% real). This encourages household savings amid shilling appreciation (+9.4% y/y), enhancing financial inclusion.
• Broader Implication: Declining deposit costs lower banks' funding expenses, potentially enabling more lending without eroding margins. It signals confidence in sustained low inflation (projected to stay within 3–5%), driven by food supply adequacy and easing global oil prices.

3. Interest Rate Spread: Narrowing for Better Affordability and Intermediation

• Slight Widening (5.66 to 5.69 percentage points): Wait—your summary notes a narrowing, but based on the data (12-month lending implied around 15.52% short-term proxy minus 9.84% deposit), it's actually a minor widening from August. This subtle shift still indicates stable financial conditions, with healthy competition preventing excessive spreads.
• Broader Implication: A tight spread (under 6 points) improves credit affordability for borrowers while keeping deposits attractive, supporting financial intermediation. It reflects low policy uncertainty (aligned with global trends) and BOT's liquidity management, which has kept non-core inflation (e.g., energy) cooling.

4. Macroeconomic and Policy Context from the Review

• Support for Growth and Stability: These rate dynamics reinforce the Review's narrative of prudent fiscal/monetary implementation. With M3 growth at 20.8% y/y fueled by private credit, stable rates prevent credit bubbles while aiding export performance (external sector up). In Zanzibar, similar trends likely bolster tourism/agriculture.
• Risks and Outlook: High real rates could dampen SME investment if global uncertainties rise (e.g., trade protectionism). However, positive real deposit returns (amid 3.4% inflation) promote savings, buffering against food price volatility (e.g., rice/maize up due to regional demand). BOT projections: Inflation stable, GDP at 6%, with policy remaining neutral-accommodative.
• Sectoral Ties: Financial markets show steady equity/bond activity, while budgetary operations and debt remain sustainable, allowing room for rate flexibility.

In summary, September 2025's interest rates imply a balanced financial system: liquidity-driven deposit easing offsets mild lending hikes, promoting efficient intermediation and aligning with Tanzania's resilient growth trajectory. This configuration sustains controlled inflation, exchange rate stability, and private sector vitality, though monitoring global commodity/tariff risks remains key.