The Monetary Policy Committee (MPC) convened on April 3rd, 2024, announcing an adjustment in the central bank rate (CBR) from 5.5 percent to 6 percent. This decision was made in response to the macroeconomic forecast outlined in March 2024, signaling the need for expanded monetary policy measures to counter persistent inflationary pressures stemming from global economic dynamics. Effective for the second quarter of 2024, spanning April to June, the new CBR of 6 percent operates within a band of ±200 basis points.
The MPC's deliberations encompassed a comprehensive review of both global and domestic economic landscapes during the first quarter of 2024, along with projections for the remainder of the year. Globally, advanced and emerging market economies exhibited improved performance, with notable growth in output, declining inflation rates, and moderated monetary and financial conditions. While crude oil prices remained stable, recent fluctuations may impact future outlooks, compounded by potential OPEC+ decisions and geopolitical tensions. Domestically, despite external challenges, the economy demonstrated resilience, with promising growth forecasts for the subsequent quarters of 2024.
The Tanzanian economy sustained positive momentum, with a growth rate estimated at 5.1 percent in 2023, marking an increase from the previous year. Supported by robust public and private sector investments, particularly in infrastructure, the economy maintained steady growth. Notably, Zanzibar's economy exhibited significant growth driven by vibrant tourism activities. Projections indicate continued favorable economic conditions, buoyed by an improving business environment and favorable weather patterns.
Inflation remained low and stable, averaging 3.0 percent in the first quarter of 2024, aligning with the country's target of not exceeding 5 percent. Prudent monetary policies and sufficient domestic food supply contributed to this stability. Zanzibar experienced a similar trend, with inflation easing towards the medium-term target. The MPC expects inflation to remain consistent with targets, supported by ongoing monetary measures and adequate food reserves, with moderate risks to the outlook.
Monetary policy measures in the first quarter of 2024 successfully maintained the 7-day interbank interest rate within the prescribed band of 3.5-7.5 percent. Strong private sector credit growth, averaging 17 percent, fueled investments across key sectors such as agriculture, mining, transport, and manufacturing. Fiscal performance remained satisfactory, with revenue targets nearly met and prudent expenditure management ensuring fiscal sustainability.
The current account balance improved, driven by balanced import-export dynamics, leading to a narrowed deficit compared to previous periods. Foreign reserves remained robust, exceeding USD 5.3 billion as of March 2024, equivalent to 4.4 months of projected imports. However, the exchange rate experienced a marginal depreciation, influenced by seasonal factors and global economic conditions. Despite challenges related to foreign exchange shortages, ongoing initiatives are expected to stabilize the situation in the near future. The financial sector remained resilient, with banking indicators meeting desirable thresholds, reflecting liquidity, profitability, and asset quality.
The MPC's decision to increase the central bank rate underscores its commitment to managing inflationary pressures while supporting sustainable economic growth. With prudent monetary policies, favorable economic conditions, and ongoing reforms, Tanzania remains poised for continued progress, fostering stability and resilience across key sectors.