The Bank of Tanzania (BoT) convened a press briefing aimed at educating various media outlets in the country about the new monetary policy framework utilizing the Central Bank Rate (CBR), along with the Monetary Policy Committee's decision to raise the CBR from 5.5% to 6%.
The new Central Bank Rate will be effective during the second quarter of 2024.
Speaking at the session, the Director of Research and Economic Policy, Dr. Suleiman Missango, explained that the Central Bank Rate is provided as a benchmark rate for banks to borrow money from the central bank.
"It's a rate that the BoT sets as a benchmark for banks to borrow funds from the central bank for their operations, including lending," he stated.
He further noted that this rate is also used to control inflation by managing the amount of money in circulation.
"When the Central Bank observes that the money supply in the economy is trending higher than necessary, it utilizes this system to control inflation by reducing liquidity in circulation," Dr. Missango informed the journalists.
Additionally, the BoT Director emphasized that the monetary policy framework utilizing the Central Bank Rate assists banks and other financial institutions in setting their interest rates and does not impose an interest rate cap on banks and lending institutions.
"Because this is a benchmark rate, it helps banks and other financial institutions to determine their interest rates. Initially, when we started using this framework, people thought the Central Bank would impose an interest rate cap; that's not the case," he clarified.
Regarding the decision to raise the rate, on April 4, 2024, the Governor of the Bank of Tanzania, Emmanuel Tutuba, explained that the decision to increase the rate was based on projections or analysis conducted in March 2024, which indicated that maintaining the rate at 5.5% could lead to signs of rising inflation.