Tanzania’s Central Bank adopts interest rate-based monetary policy framework

Bank of Tanzania (BoT) will effective January 2024 change from conducting monetary policy based on the current monetary targeting framework, which targets money supply, to an interest rate-based monetary policy framework that focuses on interest rate.

Under this approach, BoT will set the Central Bank Rate (CBR) to control inflation and encourage economic growth.

A change in CBR will indicate a shift in monetary policy, either tightening or expansion.  Interest rates offered by banks and financial institutions will still be determined by market forces.

Emmanuel M. Tutuba, the Governor Bank of Tanzania, said 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 framework is also in alignment with the country’s commitment to harmonizing monetary policy frameworks in the East African Community and other regional economic communities in which Tanzania is a member,” he said on Wednesday, 03 January 2024.

Under this framework, the Bank of Tanzania will set the policy rate, known as Central Bank Rate (CBR), consistent with low and stable inflation and conducive for the growth of the economy.

“A change in the CBR will signal the direction of the monetary policy, either a tightening or expansionary monetary policy stance. The CBR will also be used as a guide for the determination of interest rates.

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

The interest rate-based framework started to be used by countries in 1990 and currently it is used by 45 central banks around the world.