Borrowing Costs Remain High, Savings Offer Mixed Returns

In January 2025, Tanzania's lending interest rates remained high, with the overall lending rate at 15.73%, slightly up from 15.70% in December 2024. Meanwhile, the negotiated lending rate stood at 12.80%, indicating that creditworthy borrowers could secure better terms. On the savings side, the overall deposit rate declined slightly to 8.31%, but negotiated deposit rates increased to 11.80%, encouraging large-scale deposits. The interest rate spread narrowed to 5.63 percentage points from 6.68% in January 2024, suggesting increased competition in the banking sector and potential future adjustments in lending rates.

Lending Interest Rates (January 2025)

• Overall lending rate: 15.73% (up from 15.70% in December 2024)
• Negotiated lending rate: 12.80% (slightly down from 12.83% in December 2024)
• Short-term lending rate (up to 1 year): 15.70%

Deposit Interest Rates (January 2025)

• Overall deposit rate: 8.31% (down slightly from 8.33% in December 2024)
• Negotiated deposit rate: 11.80% (up from 10.39% in December 2024)
• 12-month fixed deposit rate: 10.08% (up from 9.62% in December 2024)
• Savings deposit rate: 2.97% (up from 2.84% in December 2024)

Interest Rate Spread

• The spread between short-term lending and deposit interest rates narrowed to 5.63 percentage points, down from 6.68 percentage points recorded in January 2024.

These figures indicate that lending rates remained stable with slight upward movement, while deposit rates showed mixed trends, with an increase in negotiated deposit rates. The interest rate spread narrowing suggests banks are slightly reducing the gap between borrowing and lending costs.

The interest rate trends from the Bank of Tanzania with key insights into the current monetary environment and the cost of borrowing and saving in Tanzania

Key Takeaways:

1. Lending Rates Remain High (15.73%)
   • This suggests that borrowing remains relatively expensive for businesses and individuals.
   • High lending rates could slow down investment and economic expansion if businesses find it costly to access credit.
   • However, the slight increase in the lending rate (from 15.70% to 15.73%) is minimal, meaning borrowing costs have remained stable.
2. Negotiated Lending Rates Are Lower (12.80%)
   • Businesses and high-value borrowers with good creditworthiness can negotiate better loan terms, meaning not all borrowers face the highest lending rates.
   • This indicates that banks are willing to offer flexible rates to attract quality borrowers.
3. Deposit Rates Show Mixed Trends
   • Overall deposit rate (8.31%) is slightly lower, meaning banks are not offering much incentive for savings.
   • Negotiated deposit rate (11.80%) is higher, which suggests that large depositors (e.g., institutional investors) can get better returns on deposits.
   • 12-month fixed deposit rate (10.08%) is rising, which encourages long-term savings.
4. Narrowing Interest Rate Spread (5.63%)
   • The difference between lending and deposit rates is reducing (from 6.68% in January 2024 to 5.63% in January 2025).
   • This suggests banks are offering slightly better rates to depositors while keeping loan rates stable.
   • A smaller spread can indicate increased competition among banks or policy measures to make credit more affordable.

Implications for the Economy

• For Borrowers:
  • Businesses still face high borrowing costs, which could slow expansion.
  • However, those with strong financial records can access cheaper loans.
• For Savers:
  • Higher negotiated deposit rates encourage large-scale savings.
  • Lower overall deposit rates mean small savers might not benefit much from interest earnings.
• For the Banking Sector:
  • The narrowing spread suggests competition among banks, which may lead to lower lending rates in the future.
  • Banks may need to balance between attracting deposits and maintaining profitability.