Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

Tanzania's lending and deposit interest rates in November 2024
January 12, 2025  
Supporting Economic Stability and Growth Tanzania's lending and deposit interest rates in November 2024 reflected a stable financial environment conducive to economic growth. The overall lending rate remained unchanged at 15.67%, ensuring consistent borrowing costs, while the negotiated lending rate slightly eased to 12.77%, benefiting prime borrowers. On the other hand, deposit rates experienced a […]

Supporting Economic Stability and Growth

Tanzania's lending and deposit interest rates in November 2024 reflected a stable financial environment conducive to economic growth. The overall lending rate remained unchanged at 15.67%, ensuring consistent borrowing costs, while the negotiated lending rate slightly eased to 12.77%, benefiting prime borrowers. On the other hand, deposit rates experienced a modest decline, with the overall deposit rate at 8.18% and the negotiated deposit rate at 10.14%, signaling sufficient liquidity in the banking system. The narrowing short-term interest spread to 5.93 percentage points highlights improved efficiency and competition in the banking sector, fostering a more supportive financial landscape.

Interest Rates Overview: Lending and Deposit Rates

The report highlights stable trends in both lending and deposit interest rates for November 2024, with slight variations compared to previous months. These rates indicate the cost of borrowing and the return on savings within the Tanzanian financial system.

1. Lending Interest Rates

  • Overall Lending Rate: Remained unchanged at 15.67%, reflecting stability in the cost of credit for borrowers.
  • Negotiated Lending Rate: Marginally decreased to 12.77% from 12.93% in October 2024.
    • Negotiated rates are typically offered to large borrowers or prime customers, highlighting some relaxation in credit terms for preferred clients.

2. Deposit Interest Rates

  • Overall Deposit Rate: Declined slightly to 8.18%, down from 8.25% in October 2024.
  • Negotiated Deposit Rate: Dropped to 10.14%, compared to 10.27% in October.
    • This reflects a slight reduction in returns offered by banks to attract savings.

3. Interest Rate Spread

  • The spread between lending and deposit rates provides insight into banking profitability and efficiency.
    • The short-term interest spread narrowed to 5.93 percentage points in November 2024, compared to 6.47 percentage points in the same period of 2023.
    • This narrowing suggests increased competition among banks or improved cost efficiencies in financial intermediation.

Key Figures in Summary

Interest RateNovember 2024October 2024November 2023
Overall Lending Rate15.67%15.67%15.38%
Negotiated Lending Rate12.77%12.93%13.29%
Overall Deposit Rate8.18%8.25%7.64%
Negotiated Deposit Rate10.14%10.27%9.15%
Short-Term Interest Spread5.93 percentage points--6.47 percentage points

Interpretation

The stable lending rates suggest consistent credit availability for businesses and individuals, crucial for economic activity. The slight decline in deposit rates may reflect ample liquidity in the banking system, reducing the need for banks to aggressively attract deposits. The narrowing interest rate spread is a positive development, indicating potential benefits for borrowers through lower borrowing costs and increased banking competition.

The information on lending and deposit interest rates reveals several insights into Tanzania's financial and economic environment

1. Stable Lending Rates Indicate Credit Availability

  • The unchanged overall lending rate of 15.67% reflects a consistent cost of borrowing, ensuring businesses and individuals have access to credit for economic activities.
  • The slight drop in the negotiated lending rate to 12.77% highlights increased flexibility for prime borrowers, likely supporting key sectors and large-scale investments.

2. Declining Deposit Rates Reflect Ample Liquidity

  • The reduction in the overall deposit rate to 8.18% suggests that banks are less aggressive in attracting deposits. This is likely due to sufficient liquidity in the banking system.
  • The decrease in the negotiated deposit rate to 10.14% aligns with this trend, further indicating that banks have access to alternative funding sources or are managing their liquidity efficiently.

3. Narrowing Interest Rate Spread Points to Efficiency

  • The narrowing of the short-term interest spread to 5.93 percentage points from 6.47% in 2023 indicates:
    • Improved competition among banks, potentially lowering borrowing costs for consumers.
    • Greater efficiency in financial intermediation, which benefits the broader economy.

4. Economic Implications

  • For Borrowers: Stable and slightly reduced borrowing rates make credit accessible and affordable, encouraging investment and consumption, particularly in key sectors like agriculture and SMEs.
  • For Savers: Lower deposit rates might discourage savings, but they reflect a stable banking environment where liquidity pressures are minimal.
  • For the Banking Sector: A narrowing spread suggests competitive pressures or operational improvements that can foster a healthier financial system.

Overall Insight

The interest rate trends reveal a balanced approach to monetary and financial stability in Tanzania. By keeping borrowing costs stable and deposit rates manageable, the Bank of Tanzania supports sustained economic growth while maintaining a well-functioning banking system. This is particularly important in an economy experiencing strong credit demand and seasonal cash flow pressures.

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