Tanzania officially adopts interest rate-based monetary policy

Dar es Salaam. The Bank of Tanzania (BoT) has officially adopted an interest rate-based monetary policy, effective this month. This shift signifies the government’s move away from using the quantity of money to set monetary policy.

“The adoption of this framework will improve the effectiveness of monetary policy in maintaining low and stable inflation (price stability) and facilitating economic activities,” the BoT said in a statement released on Wednesday, January 3.

The statement, signed by the central bank governor, Emanuel Tutuba, said the new framework aligns with the country’s commitment to harmonize monetary policy frameworks in the East African Community and other regional economic communities of which Tanzania is a member.

Under the new framework, Governor Tutuba said, the Bank of Tanzania would set the policy rate, known as the Central Bank Rate (CBR), consistent with low and stable inflation conducive to economic growth.

“A change in the CBR will signal the direction of monetary policy, indicating either a tightening or expansionary monetary policy stance,” he said.

He further noted that the CBR would also serve as a guide for the determination of interest rates by financial institutions. However, he warned the public not to consider the CBR as an indicative interest rates for commercial banks.

“The public is advised to note that the adoption of the interest rate-based monetary policy framework does not imply the fixing of interest rates offered by banks and other financial institutions. Interest rates will continue to be determined by market forces in line with other economic policies of the country,” he stressed.