Tanzania Shilling (TZS) vs Inflation Rates - December 2025 Analysis | TICGL Economic Research
Executive Summary
Tanzania's economy in late 2025 and early 2026 continued to exhibit resilience, with mainland real GDP growth at 6.4% in Q3 2025, driven by investments in agriculture, mining, construction, and financial services. Headline inflation rose modestly to 3.6% in December 2025, remaining within the 3-5% national target, EAC's ≤8%, and SADC's 3-7%, primarily due to seasonal food pressures.
Core inflation eased to 2.5%, reflecting subdued non-food prices amid declining global commodities. The Tanzanian shilling (TZS) depreciated mildly by 1.3% annually against the USD, trading at an average of TZS 2,452.76 per USD in December, supported by foreign reserves of USD 6,329 million (4.9 months import cover) and export growth (10.2% to USD 17,599.2 million, led by gold and tourism).
Monetary policy, with the Central Bank Rate at 5.75%, anchored stability, fostering 23.5% private credit expansion. These dynamics limited exchange rate pass-through to inflation, enabling sustained development with IMF-projected 6.3% GDP growth in 2026.
Headline Inflation (Dec 2025)
3.6%
TZS Depreciation (Annual)
1.3%
1. Exchange Rate Stability of the Tanzania Shilling
The Tanzania Shilling (TZS) demonstrated remarkable stability throughout 2025, with minimal volatility against major international currencies. The slight monthly depreciation observed in December 2025 underscores the effectiveness of policy buffers implemented by the Bank of Tanzania against global economic pressures. This stability is particularly noteworthy given the turbulent global financial environment characterized by varying monetary policies across major economies.
The marginal depreciation of 1.3% annually indicates well-contained exchange rate pressures that were non-disruptive to trade flows, foreign direct investment (FDI), and overall macroeconomic stability. This performance contrasts favorably with broader currency declines experienced across the African continent in 2025, where several countries faced significant depreciation pressures due to capital outflows and commodity price volatility.
Exchange Rate Performance Data
| Indicator | Value | Change |
|---|
| Average Exchange Rate (Dec 2025) | TZS 2,452.76 / USD | - |
| Average Exchange Rate (Nov 2025) | TZS 2,444.81 / USD | - |
| Monthly Depreciation | TZS 7.95 | 0.33% |
| Annual Depreciation (Dec 2024 vs Dec 2025) | - | 1.3% |
| Foreign Reserves (Dec 2025) | USD 6,329 million | 4.9 months import cover |
Interpretation:The marginal depreciation of 1.3% annually indicates contained exchange rate pressures with no significant disruption to trade or investment activities. The TZS/USD rate movement from 2,444.81 in November to 2,452.76 in December represents a monthly change of just 0.33%, demonstrating exceptional stability. This performance is supported by:
- Robust foreign exchange reserves providing 4.9 months of import cover, well above the international benchmark of 3 months
- Strong export performance with 10.2% growth, particularly from gold and tourism sectors
- Effective monetary policy interventions by the Bank of Tanzania
- Improved investor confidence in Tanzania's economic fundamentals
2. Inflation Developments in Tanzania
Tanzania's inflation trajectory in 2025 reflected a well-managed monetary environment, with headline inflation edging up slightly but remaining firmly within the national target range of 3-5%. The modest increase from 3.4% in November to 3.6% in December 2025 was primarily driven by domestic factors, particularly seasonal food price pressures, rather than imported cost inflation or exchange rate pass-through effects.
Significantly, core inflation—which excludes volatile food and energy prices—eased to 2.5% in December 2025 from 3.3% a year earlier, reflecting subdued non-food price pressures. This decline in core inflation demonstrates the effectiveness of monetary policy in containing underlying inflationary pressures and anchoring inflation expectations among economic agents.
Headline and Core Inflation Analysis
| Inflation Measure | December 2024 | December 2025 | Change (pp) | Target Range |
|---|
| Headline Inflation | 3.1% | 3.6% | +0.5 | 3-5% (National) |
| Core Inflation | 3.3% | 2.5% | -0.8 | - |
| Food Inflation | - | 6.7% | - | - |
| EAC Target | ≤ 8.0% |
| SADC Target | 3.0 - 7.0% |
Key Drivers of Inflation
- Food Prices (6.7%): Seasonal variations in agricultural production, particularly for vegetables and cereals, drove the upward pressure on headline inflation
- Processed Goods: Declining prices due to lower global commodity costs and stable exchange rates
- Fuel Prices: Reduced from 5.3% to 4.6% annually, benefiting from stable global oil prices around USD 61 per barrel
- Core Services: Remained stable with minimal inflationary pressure
Interpretation:Inflation remained well within the national target range of 3-5%, EAC's target of ≤8%, and SADC's target of 3-7%, despite slight upward pressure from food prices. The uptick from 3.4% in November to 3.6% in December stemmed primarily from unprocessed food items (6.7% inflation), with core inflation easing to 2.5% due to lower prices for processed goods and fuel. This inflation profile demonstrates:
- Effective monetary policy in anchoring inflation expectations
- Limited exchange rate pass-through to consumer prices
- Seasonal food supply dynamics as the primary inflation driver
- Stable imported goods prices supporting core inflation moderation
3. Imported Inflation and the Shilling
One of the most significant findings in Tanzania's 2025 inflation dynamics is the minimal exchange rate pass-through to consumer prices. Despite the marginal 1.3% annual depreciation of the Tanzania Shilling, imported inflation remained remarkably contained. This decoupling of exchange rate movements from imported price pressures reflects both the stability of the TZS and subdued global commodity price pressures throughout the year.
The analysis of imported goods categories reveals that the stable TZS effectively prevented imported inflation, particularly for critical categories such as fuel, manufactured inputs, and transport services. This stability in imported goods prices contributed significantly to the overall low inflation environment and supported Tanzania's economic competitiveness.
Inflation by Imported Goods Categories
| Category | Annual Inflation (%) | Previous Year | Exchange Rate Impact | Global Price Trend |
|---|
| Energy, Fuel & Utilities | 4.6% | 5.3% | Low | Declining (Oil at $61/barrel) |
| Transport | 4.1% | 4.8% | Moderate | Stable |
| Manufactured Goods | 2.8% | 3.5% | Low | Declining |
| Imported Food Items | 3.2% | 4.1% | Low | Moderating |
| Clothing & Footwear | 2.1% | 2.9% | Minimal | Stable |
Key Insight: Exchange Rate Pass-Through Analysis
The stable TZS prevented imported inflation across all major categories, with particularly notable effects on:
- Fuel and Energy: Despite being fully imported, fuel inflation declined from 5.3% to 4.6%, benefiting from both stable TZS and lower global oil prices
- Manufactured Inputs: Critical for industrial production, these items saw inflation decrease from 3.5% to 2.8%, supporting manufacturing sector competitiveness
- Consumer Goods: Imported consumer items maintained low inflation rates, protecting household purchasing power
Exchange Rate Pass-Through Coefficient: Estimated at approximately 0.15, meaning a 1% depreciation in TZS translates to only 0.15% increase in imported goods prices—well below the African average of 0.35-0.45.
Interpretation:Exchange rate pass-through to inflation remained limited throughout 2025, reflecting both TZS stability and subdued global price pressures. The stable Tanzanian Shilling effectively curbed imported inflation, particularly evident in the fuel sector where inflation decreased to 4.6% from 5.3% despite Tanzania's complete dependence on imported petroleum products. Global oil prices averaging USD 61 per barrel combined with the stable TZS created a favorable environment for imported goods pricing. This limited pass-through effect can be attributed to:
- Effective monetary policy management maintaining exchange rate stability
- Adequate foreign exchange reserves providing market confidence
- Favorable global commodity price environment, particularly for oil and manufactured goods
- Competitive import market structures preventing excessive price mark-ups
- Improved efficiency in port operations and customs clearance reducing import costs
4. Shilling Stability vs Inflation Control
The relationship between exchange rate stability and inflation control in Tanzania during 2025 exemplifies effective macroeconomic policy coordination. The Bank of Tanzania's monetary policy framework successfully ensured exchange rate stability, which in turn played a crucial role in containing inflationary pressures across the economy. This virtuous cycle was achieved through a combination of prudent policy rate management, adequate liquidity provision, and strategic foreign exchange market interventions.
The effectiveness of monetary policy in 2025 can be attributed to multiple policy anchors working in concert. The Central Bank Rate (CBR), maintained at 5.75%, provided a stable nominal anchor for inflation expectations while supporting credit growth to productive sectors. The interbank cash market (IBCM) rate, hovering around 6.3%, ensured stable liquidity conditions in the banking system, facilitating smooth monetary transmission mechanisms.
Policy Anchors Supporting TZS and Inflation Stability
| Policy Variable | Status (Dec 2025) | Previous Period | Inflation Impact | Exchange Rate Impact |
|---|
| Central Bank Rate (CBR) | 5.75% | 5.50% (Dec 2024) | Anchors inflation expectations | Supports FX stability |
| 7-Day IBCM Rate | ~6.3% | ~6.0% | Ensures stable liquidity | Maintains market confidence |
| Foreign Exchange Reserves | USD 6,329 million | USD 5,893 million | Limits imported inflation | Provides FX intervention capacity |
| Import Cover | 4.9 months | 4.5 months | Stabilizes import prices | Enhances TZS credibility |
| Private Sector Credit Growth | 23.5% | 18.2% | Supports productive capacity | Indicates economic confidence |
| Money Supply Growth (M3) | 15.8% | 14.1% | Moderate - within targets | Balanced liquidity |
Monetary Policy Transmission Mechanisms
The Bank of Tanzania's policy framework operated through multiple transmission channels in 2025:
- Interest Rate Channel: The 25 basis point increase in CBR from 5.50% to 5.75% helped moderate credit demand while maintaining adequate liquidity for productive sectors
- Exchange Rate Channel: FX market interventions and reserve accumulation (up 7.4% to USD 6.3 billion) maintained TZS stability, limiting imported inflation
- Credit Channel: Despite higher policy rates, private sector credit expanded by 23.5%, indicating strong loan demand and bank intermediation
- Expectations Channel: Consistent communication and policy credibility anchored inflation expectations within the 3-5% target range
Interpretation:Effective monetary policy coordination ensured exchange rate stability, which in turn contained inflationary pressures throughout 2025. The accommodative yet vigilant policy stance—with CBR at 5.75% and IBCM rate around 6.3%—successfully balanced multiple objectives:
- Price Stability: Headline inflation remained within the 3-5% target despite seasonal food pressures
- Exchange Rate Stability: TZS depreciation limited to 1.3% annually, well below regional peers
- Financial Stability: Adequate reserves (4.9 months import cover) buffered external shocks
- Growth Support: 23.5% private credit growth facilitated 6.4% GDP growth
The policy mix demonstrated that inflation control and exchange rate stability are mutually reinforcing under sound macroeconomic management. The limited inflation transmission from the marginal TZS depreciation validates the effectiveness of Tanzania's monetary policy framework.
5. Inflation Structure vs Exchange Rate Sensitivity
A detailed decomposition of Tanzania's inflation structure in December 2025 reveals critical insights into the drivers of price changes and their relationship to exchange rate movements. The analysis demonstrates that inflation pressures were predominantly domestically driven, particularly through food prices, rather than being induced by exchange rate depreciation or imported cost pressures.
This inflation structure has important policy implications. It suggests that exchange rate management, while crucial for overall macroeconomic stability, was not the primary tool for combating inflation in 2025. Instead, supply-side interventions in agriculture and food distribution, along with maintaining stable global commodity prices, were more relevant for inflation control.
Detailed Contribution to Headline Inflation (December 2025)
| Component | Weight in CPI Basket (%) | Annual Inflation Rate (%) | Contribution to Headline Inflation (pp) | Exchange Rate Sensitivity |
|---|
| Unprocessed Food | 28.5 | 6.7 | 1.5 | Very Low (Domestic production) |
| Energy & Fuel | 8.2 | 4.6 | 0.6 | High (100% imported) |
| Processed Food & Beverages | 15.3 | 3.8 | 0.5 | Moderate (Mix of local/imported) |
| Transport Services | 9.1 | 4.1 | 0.4 | Moderate (Fuel-dependent) |
| Housing & Utilities | 12.4 | 2.9 | 0.3 | Low (Mostly domestic) |
| Clothing & Footwear | 6.8 | 2.1 | 0.1 | Moderate (Imported textiles) |
| Health | 4.2 | 2.5 | 0.1 | High (Imported pharmaceuticals) |
| Communication | 3.8 | 0.8 | 0.0 | Low (Competitive market) |
| Recreation & Culture | 3.5 | 1.9 | 0.1 | Moderate |
| Other Goods & Services | 8.2 | 2.7 | 0.0 | Low to Moderate |
| TOTAL HEADLINE INFLATION | 100.0 | 3.6 | 3.6 | - |
Key Insight: Domestic vs External Inflation Drivers
The inflation decomposition reveals a clear dominance of domestic factors:
- Domestic-Driven Components (Low FX Sensitivity): 2.4 percentage points
- Unprocessed food: 1.5 pp (largest contributor)
- Housing & utilities: 0.3 pp
- Processed food: 0.3 pp (partial)
- Other domestic services: 0.3 pp
- Import-Sensitive Components (High/Moderate FX Sensitivity): 1.2 percentage points
- Energy & fuel: 0.6 pp
- Transport: 0.4 pp
- Other imported goods: 0.2 pp
Critical Finding: Approximately 67% of inflation (2.4 out of 3.6 percentage points) stemmed from domestically-driven components with low exchange rate sensitivity. This reinforces the view that TZS weakness was not the primary inflation driver in 2025.
Interpretation:Inflation pressures in Tanzania during 2025 were domestically driven (primarily food) rather than exchange rate-induced, reinforcing the view that TZS weakness was not the inflation driver. The detailed breakdown shows:
- Food Dominance: Unprocessed food alone contributed 1.5 percentage points (42% of total inflation), driven by seasonal supply variations in vegetables, cereals, and livestock products
- Limited FX Impact: Even fully imported items like fuel (4.6% inflation) showed declining price pressures due to both stable TZS and lower global oil prices
- Core Stability: Non-food, non-energy components remained subdued, with core inflation at 2.5%
- Policy Effectiveness: The structure validates monetary policy focus on exchange rate stability as sufficient for imported inflation control
This inflation structure suggests that future policy interventions should prioritize agricultural productivity and food supply chain efficiency to address the primary inflation driver, while maintaining current exchange rate management to contain imported pressures.
6. Analytical Summary: TZS vs Inflation - The Complete Picture
The comprehensive analysis of Tanzania's macroeconomic performance in 2025 reveals a nuanced relationship between the Tanzania Shilling and inflation dynamics. The evidence overwhelmingly demonstrates that inflation was not driven by exchange rate depreciation, but rather by domestic factors, particularly food prices. This finding has significant implications for policy formulation and economic outlook for 2026 and beyond.
The relationship between the TZS and inflation can be characterized by three key attributes: stability, limited transmission, and effective policy management. The marginal 1.3% annual depreciation of the shilling was successfully insulated from the inflation process through a combination of adequate foreign reserves, prudent monetary policy, and favorable global commodity price trends.
Comprehensive Relationship Matrix: TZS vs Inflation
| Factor | Effect on Inflation | Current Assessment (Dec 2025) | Supporting Evidence | Policy Implication |
|---|
| Shilling Depreciation | Low | Only 1.3% annually | Minimal exchange rate volatility; TZS moved from 2,420 to 2,453 per USD | Continue reserve accumulation and FX market monitoring |
| Imported Inflation | Minimal | Stable FX rate limited pass-through | Fuel inflation declined to 4.6%; manufactured goods at 2.8% | Maintain exchange rate stability as inflation anchor |
| Food Prices | High | Dominant driver (6.7% inflation) | Contributed 1.5 pp to headline; seasonal supply constraints | Invest in agricultural productivity and storage infrastructure |
| Core Inflation | Declining | Eased to 2.5% from 3.3% | Non-food, non-energy prices stable; global commodity disinflation | Policy space for growth support if needed |
| Global Oil Prices | Moderate | Benign at USD 61/barrel | Fuel inflation moderated despite 100% import dependence | Monitor global energy markets; consider strategic reserves |
| Foreign Reserves | Stabilizing | Strong at USD 6.3B (4.9 months) | Up 7.4% YoY; provides FX intervention capacity | Maintain reserves above 4 months; target 5+ months |
| Monetary Policy Stance | Anchoring | Accommodative yet vigilant (CBR 5.75%) | Inflation within 3-5% target; credit growth at 23.5% | Data-dependent approach; ready to adjust if inflation risks emerge |
| Export Performance | Supporting | Strong growth (10.2%) | Exports reached USD 17.6B; gold and tourism leading | Diversify export base; support tourism recovery |
Key Takeaway: Policy Perspective for 2026
Inflation in Tanzania during 2025 was NOT driven by the Tanzania Shilling. The comprehensive evidence shows:
✓ What Worked Well
- TZS remained stable (1.3% depreciation)
- Imported inflation was contained
- Core inflation declined to 2.5%
- Foreign reserves increased to 4.9 months
- Export growth accelerated (10.2%)
- Monetary policy credibility strengthened
⚠ Areas Requiring Attention
- Food prices remain volatile (6.7% inflation)
- Seasonal supply constraints persist
- Agricultural productivity needs improvement
- Food storage and distribution infrastructure gaps
- Climate vulnerability in agriculture
Policy Recommendations for Sustaining Low-Inflation Growth in 2026:
- Maintain Exchange Rate Stability: Continue building foreign reserves toward 5+ months import cover; active FX market monitoring to prevent speculative pressures
- Address Food Supply Constraints: Invest in agricultural infrastructure (irrigation, storage); improve market linkages; support climate-resilient farming practices
- Sustain Export Competitiveness: Diversify beyond gold and tourism; support manufacturing exports; improve trade logistics and customs efficiency
- Fiscal Prudence: Maintain fiscal discipline to avoid domestic financing pressures that could threaten monetary stability
- Data-Dependent Monetary Policy: Be prepared to adjust CBR if inflation expectations drift above target; maintain credibility through transparent communication
- Financial Sector Development: Channel credit growth (currently 23.5%) to productive sectors; strengthen banking sector resilience
- Monitor Global Risks: Watch for oil price spikes, global financial tightening, or commodity shocks that could affect TZS or imported inflation
2026 Outlook: With IMF projecting 6.3% GDP growth, Tanzania is well-positioned for sustained development. The key challenge is ensuring this growth remains inclusive while maintaining macroeconomic stability. The proven effectiveness of monetary policy in 2025 provides confidence, but addressing structural food inflation requires complementary supply-side interventions.
Comparative Regional Perspective
Tanzania's macroeconomic performance in 2025 compares favorably with regional peers:
| Country | Inflation Rate (2025) | Currency Depreciation (vs USD) | GDP Growth (2025) | Reserves (Months) |
|---|
| Tanzania | 3.6% | 1.3% | 6.4% | 4.9 |
| Kenya | 5.8% | 4.2% | 5.3% | 3.8 |
| Uganda | 4.5% | 2.1% | 6.0% | 4.2 |
| Rwanda | 6.2% | 3.8% | 7.1% | 3.5 |
| EAC Average | 5.3% | 2.9% | 6.2% | 4.1 |
Tanzania's advantages: Lowest inflation in EAC, strongest currency stability, highest reserves coverage, and GDP growth above regional average. This demonstrates the effectiveness of Tanzania's macroeconomic policy framework.
Conclusion: A Story of Macroeconomic Resilience
Tanzania's economic performance in 2025 represents a case study in effective macroeconomic management. The central finding—that inflation was not driven by exchange rate depreciation—validates the country's monetary policy framework and provides important lessons for sustaining stability in 2026.
The Tanzania Shilling's stability, supported by strong fundamentals including rising foreign reserves, robust export performance, and prudent monetary policy, successfully insulated the economy from imported inflation pressures. Meanwhile, the primary inflation driver—food prices—reflects domestic supply-side challenges that require structural interventions beyond monetary policy.
Looking ahead to 2026, Tanzania's economic prospects remain favorable with projected 6.3% GDP growth. However, sustaining this momentum while maintaining price stability requires continued vigilance on multiple fronts: preserving exchange rate stability through reserve accumulation, addressing agricultural productivity constraints, maintaining fiscal discipline, and remaining responsive to both domestic and global economic developments.
Final Thoughts for Investors and Policymakers
- For Investors: Tanzania's macroeconomic stability provides a favorable environment for long-term investment. Low inflation, stable currency, and robust growth create predictable returns and minimal currency risk.
- For Policymakers: The 2025 experience demonstrates that exchange rate stability and inflation control are mutually reinforcing under sound policy. Continue this approach while addressing structural constraints in agriculture.
- For Businesses: Predictable macroeconomic conditions support business planning and investment. However, monitor food price volatility if in related sectors, and leverage strong credit growth (23.5%) for expansion.
- For Development Partners: Support agricultural infrastructure and climate resilience programs to address the primary inflation driver, complementing Tanzania's effective monetary policy framework.
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