Strong Investor Confidence Amid Tightening Liquidity Tanzania’s financial markets showed strong investor interest in government securities, stable foreign exchange rates, but rising interbank lending rates in January 2025. The 25-year Treasury bond was oversubscribed with TZS 502.7 billion in bids, while the 10-year bond faced weak demand, attracting only TZS 88 billion. Interbank cash market […]
Tanzania’s financial markets showed strong investor interest in government securities, stable foreign exchange rates, but rising interbank lending rates in January 2025. The 25-year Treasury bond was oversubscribed with TZS 502.7 billion in bids, while the 10-year bond faced weak demand, attracting only TZS 88 billion. Interbank cash market transactions rose to TZS 2,245.8 billion, but the 7-day interest rate increased to 7.80%, signaling tighter liquidity. Meanwhile, foreign exchange market activity declined, with only USD 16.3 million traded, and the Shilling depreciated slightly to TZS 2,454.04 per USD from TZS 2,420.84 in December 2024.
1. Government Securities Market
Government securities include Treasury bills (short-term) and Treasury bonds (long-term), used to finance government operations.
Treasury Bills (Short-Term Securities)
In January 2025, the Bank of Tanzania conducted two Treasury bill auctions with a total tender size of TZS 218 billion.
The auctions were oversubscribed, attracting bids worth TZS 400.8 billion, but only TZS 281.4 billion was accepted.
Weighted average yield (WAY) decreased to 12.51%, from 12.86% in December 2024, showing strong investor demand.
Treasury Bonds (Long-Term Securities)
The government issued 10-year and 25-year Treasury bonds in January 2025:
10-year bond: Tender size TZS 167.32 billion, but only TZS 88 billion in bids were received, of which TZS 33.0 billion was accepted (indicating undersubscription).
25-year bond: Oversubscribed, attracting TZS 502.7 billion, but only TZS 362.0 billion was accepted.
Yields on bonds:
10-year bond yield increased to 14.08% (suggesting higher borrowing costs for the government).
25-year bond yield slightly decreased to 15.84% (indicating investors’ long-term confidence).
2. Interbank Cash Market (IBCM)
The Interbank Cash Market allows banks to lend and borrow short-term funds among themselves.
In January 2025, total transactions in the interbank market increased to TZS 2,245.8 billion, from TZS 1,616.8 billion in December 2024.
7-day transactions accounted for 42.9% of total market turnover, while overnight transactions made up 18%, indicating improved liquidity conditions in the banking sector.
Overall interbank cash market interest rate rose to 7.80%, compared to 7.41% in December 2024, reflecting tightened liquidity conditions.
3. Interbank Foreign Exchange Market (IFEM)
The Interbank Foreign Exchange Market (IFEM) facilitates trading of foreign currencies among banks.
Market activity declined compared to December 2024, but participation remained stronger than January 2024.
Total transactions in January 2025 stood at USD 16.3 million, much lower than USD 95.7 million in December 2024, but significantly higher than USD 3.8 million in January 2024.
The Bank of Tanzania intervened by selling USD 7 million to stabilize the market.
Exchange rate movements: The Tanzanian Shilling traded at an average of TZS 2,454.04 per USD, compared to TZS 2,420.84 per USD in December 2024.
On an annual basis, the Shilling appreciated by 2.6%, lower than 3.8% appreciation in December 2024, showing gradual stability in the foreign exchange market.
Summary of Key Trends
Market
January 2025 Key Figures
Comparison with December 2024
Treasury Bills
TZS 400.8 billion in bids, WAY at 12.51%
Higher demand, lower yields (12.86% in Dec 2024)
Treasury Bonds (10-yr)
TZS 88 billion in bids, WAY at 14.08%
Undersubscribed, higher yield
Treasury Bonds (25-yr)
TZS 502.7 billion in bids, WAY at 15.84%
Oversubscribed, lower yield
Interbank Cash Market
TZS 2,245.8 billion total transactions
Higher than TZS 1,616.8 billion in Dec 2024
Interbank Interest Rate
7.80%
Increased from 7.41% in Dec 2024
Foreign Exchange Market
USD 16.3 million traded
Lower than USD 95.7 million in Dec 2024
TZS/USD Exchange Rate
2,454.04
Slight depreciation from 2,420.84 in Dec 2024
Implications for Tanzania’s Economy
Stronger investor demand for government securities (except for the 10-year bond) shows confidence in Tanzania’s financial stability.
Higher interbank rates (7.80%) suggest tighter liquidity, meaning banks are charging more for short-term loans.
Weaker foreign exchange market activity may indicate reduced trade or investor participation.
The Tanzanian Shilling remains stable, with only slight depreciation against the USD.
Key Takeaways from Tanzania’s Financial Market Trends (January 2025)
1. Government Securities Market: Strong Demand but Mixed Performance
Treasury bills and long-term bonds continue to attract strong investor interest, especially the 25-year bond, which was oversubscribed (TZS 502.7 billion in bids).
The 10-year bond was undersubscribed, meaning investors are hesitant about medium-term lending to the government.
The decline in Treasury bill yields (12.51% from 12.86%) suggests strong demand for safe assets, lowering the government’s borrowing costs.
However, higher yields on the 10-year bond (14.08%) indicate concerns about mid-term risks, such as inflation or fiscal pressures.
What it means:
Government borrowing remains strong, showing a need for financing.
Short-term interest rates are declining, meaning investors expect stable inflation and controlled monetary policy.
2. Interbank Cash Market: Rising Interest Rates Signal Tight Liquidity
Total interbank transactions increased to TZS 2,245.8 billion (from TZS 1,616.8 billion in December 2024), meaning banks are lending more to each other.
Interbank interest rates rose to 7.80% (up from 7.41%), showing banks are charging more for short-term loans due to tighter liquidity.
7-day transactions (42.9% of market share) suggest banks are preferring short-term liquidity management rather than long-term lending.
What it means:
Liquidity in the banking sector is tightening, possibly due to higher government borrowing or increased credit demand from businesses.
Banks are cautious about lending, which could mean higher borrowing costs for businesses and individuals in the short term.
A rise in short-term rates might push overall lending rates higher, making credit more expensive.
Market transactions dropped significantly to USD 16.3 million, compared to USD 95.7 million in December 2024, indicating reduced foreign exchange trading activity.
The Tanzanian Shilling traded at TZS 2,454.04 per USD, slightly weaker than TZS 2,420.84 in December 2024.
The Bank of Tanzania sold USD 7 million to stabilize the market, showing efforts to manage exchange rate fluctuations.
What it means:
Lower foreign exchange trading suggests reduced external transactions—either lower imports/exports or less investor participation in the forex market.
The Shilling remains relatively stable, with only a slight depreciation (2,454.04 from 2,420.84), showing resilience despite external pressures.
The Bank of Tanzania’s intervention (selling USD 7 million) suggests efforts to prevent excessive depreciation, ensuring exchange rate stability.
Overall Economic Implications
🔹 Positive Signs: ✅ Government securities remain attractive, especially for long-term investors. ✅ The Shilling remains stable, with only slight depreciation. ✅ Investor confidence in long-term bonds (25 years) is high, showing optimism for Tanzania’s future.
🔸 Challenges: ⚠ Interbank interest rates are rising (7.80%), signaling liquidity tightening in the banking sector. ⚠ Reduced forex market activity may indicate slower trade or lower capital inflows. ⚠ Government borrowing remains high, which could put pressure on public finances.
