In August 2024, Tanzania’s financial sector displayed a stable interest rate environment, with lending rates remaining steady while deposit rates saw a slight increase. The overall lending rate stood at 15.26%, reflecting stable borrowing conditions, while savings deposit rates rose to 3.02%, encouraging more savings. A narrowing interest rate spread indicates reduced credit risk and increased market confidence. These developments signal a healthy and efficient financial sector, supporting both savers and borrowers in Tanzania's growing economy.

1. Overall Lending Rates:

• The overall lending rate stood at 15.26%, only slightly lower than 15.29% in July 2024.
• The short-term lending rate (loans with a maturity of up to 1 year) averaged 15.50%, a small decline from 15.67% in the previous month.

2. Negotiated Lending Rates:

• Negotiated lending rates, which are rates agreed upon between banks and clients, averaged 12.79% in August 2024, which remained almost unchanged from 12.78% in July 2024.

3. Deposit Rates:

• The overall deposit rate slightly decreased to 7.98% in August, compared to 8.15% in July 2024.
• Savings deposit rates rose to 3.02%, up from 2.87% in July, reflecting banks offering better returns on savings deposits.
• The negotiated deposit rate reached 10.12%, up from 9.96% in July.

4. Interest Rate Spread:

• The spread between the short-term lending rate and deposit rate averaged 6.68 percentage points in August, a slight increase from 6.66 percentage points in July 2024.
• This was a notable improvement compared to 8.08 percentage points recorded in August 2023, indicating a reduction in credit risk in the market.

The interest rate figures for Tanzania in August 2024 reveals several important insights about the country’s economic and financial conditions

The stability in interest rates, combined with better deposit returns and a narrowing spread, reflects growing confidence in Tanzania’s economic environment. While lending rates are still relatively high, the overall conditions suggest that the financial sector is healthy, credit risk is reducing, and banks are positioned to support both savings and borrowing activities. This is a positive indicator for both consumers and businesses looking to engage in financial transactions.

1. Stable Lending Environment:

• The overall lending rate of 15.26% suggests that banks are maintaining stable interest rates for borrowers. While high compared to international standards, the rate’s stability indicates that Tanzania's banking sector is cautious but not tightening credit conditions further.
• The short-term lending rate (15.50%) is slightly lower than previous months, suggesting a slight easing of conditions for businesses and consumers seeking short-term loans.

Stability in lending rates reflects banks’ confidence in economic stability, and it offers predictability for businesses planning to borrow for investment or expansion.

2. Increased Savings Returns:

• The increase in savings deposit rates (from 2.87% to 3.02%) indicates that banks are offering better returns to attract deposits. This rise may encourage households and businesses to save more.
• Negotiated deposit rates, which rose to 10.12%, show that some clients can secure even higher returns for large or long-term deposits, making it more attractive to keep money in the bank.

Higher savings rates can promote more savings, increasing liquidity in banks, which can then be used to extend more credit to businesses.

3. Narrowing Interest Rate Spread:

• The spread between lending and deposit rates narrowed to 6.68 percentage points from 8.08 percentage points a year earlier. This narrowing suggests reduced credit risk and increased competition among banks.

A lower spread means that banks are charging less of a premium on loans, making borrowing slightly cheaper while offering better returns for depositors. This is a positive sign for the economy, indicating improved efficiency in the financial sector.

4. Slightly Lower Risk Perception:

• The narrowing of the interest rate spread also indicates that banks perceive less risk in lending, likely due to better economic performance and improved borrower confidence.