Dar to maintain less accommodative monetary policy stance

Tanzania has announced plans to maintain a less accommodative monetary policy stance according to the latest Monetary Policy Committee Meeting Statement.

According to the statement released by the Bank of Tanzania (BoT), monetary policy measures will be implemented to align liquidity with the foreign exchange demand.

“These measures are also expected to facilitate attainment of the targets under the Extended Credit Facility Program for the quarter ending September 2023,” the statement says.

The Monetary Policy Committee (MPC) held its 227th Ordinary Meeting on 31st August 2023, to assess the recent implementation of the monetary policy and noted that the less accommodative monetary policy succeeded to contain liquidity within the desired levels.

The MPC also observed that the growth of credit to the private sector was high, thus providing impetus to improved economic growth in 2023.

In addition, the MPC discussed the recent performance of the global economy and observed that it is gradually improving.

The projected growth for 2023 has been revised to 3 percent, up from the earlier projection of 2.8 percent. Additionally, commodity prices in the world market have been easing, and inflation have been declining.

“As a result, central banks in advanced economies are progressively reducing aggressiveness of monetary policy tightening. This global landscape provides favourable environment for improved growth of economic activities in Tanzania,” the statement said.

According to the statement, in Mainland Tanzania, the GDP growth for the first quarter of 2023 was 5.6

percent, in line with the annual projection of 5.2 percent, mainly driven by agriculture, construction, and mining.

The Zanzibar economy grew by 6.8percent in 2022, driven by accommodation and food services, livestock, construction and manufacturing activities.

The statement further shows that money supply growth ws relatively high compared to the target, mostly driven by private sector credit growth.

“The annual growth of extended broad money supply was 18.8 percent in June 2023, compared to the target of 10.3percent. Private sector credit recorded a robust growth of 21.2 percent, exceeding the target of 10.7 percent, attributable to an increase in demand for loans in line with improvement in the business environment,” according to the statement.

The banking sector also remaine liquid and adequately capitalized with the sector’s assets improving, as reflected by a decrease in non-performing loans (NPLs) ratio to 5.3 percent in June 2023 from 7.8 percent in June 2022.

“This trend is expected to motivate banks to increase lending to the private sector supporting further economic growth,” BoT said in a statement

The MPC however observed that, the economy experienced shortage of the foreign exchange, particularly the US dollar, due to the global shocks.

“However, owing to adequate foreign reserves and measures adopted to increase supply of the foreign exchange in the market, the situation is expected to improve. The private sector is encouraged to boost production to increase exports and import substitution,” the statement says.