Financial analyst backs move for Tanzania to reduce liquidity in H2, 2022

With just a few days gone since the Monetary Policy Committee (MPC) made a recommendation for Tanzania to reduce liquidity during the remainder of this in order to tackle rising inflationary pressure, a financial analyst conferred and backed the plan.

Bank of Tanzania (BoT) Head Office in Dar es Salaam. MPC recommended that BoT reduces the speed of expanding liquidity in the remainder of 2022, in order to tame inflationary pressures from the demand side, while safeguarding the growth of the economy. Photo / Courtesy

According the Zan Securities Chief Executive Officer (CEO) Rapaheal Masumbuko,”With the MPC’s decision to reduce the speed of expanding liquidity in the remainder of 2022, we anticipate treasury bond yields to register a slight upward trend for treasury bonds as the central bank’s policy switch to tame inflationary pressure from the demand side, will force result into a liquidity mop”.

The MPC in a statement issued at the weekend approved the Bank of Tanzania (BoT) to reduce the speed of expanding liquidity in the remainder of 2022, in order to tame inflationary pressures from the demand side, while safeguarding the growth of the economy.

It also reiterated the need for the BoT to maintain adequate foreign exchange reserves, in order to cushion the economy from the negative impact of high commodity prices in the world market.

“The MPC observed that growth continued to be undermined by the effects of the war in Ukraine, a resurgence of the COVID-19 pandemic in China, rising inflation, and tighter financial conditions. As a result, growth projections of the global economy for 2022 and 2023 have been revised downward. These global increased downside risks to the recovery of the domestic economy,” the statement said.

It added ehe performance of the domestic economy in the first and second quarters was broadly in line with the 2022 growth projection of 4.7 per cent and 5.4 per cent for Tanzania Mainland and

Zanzibar, respectively.

“Inflation increased in May and June 2022, attributable to persistent high prices of imports, but remained within the target of 3-5 per cent for Tanzania Mainland and 5 per cent for Zanzibar. However, high food, energy and fertilizer prices in the world market pose an upward risk to future inflation,” it added.