INFLATION has remained to be a thorn and major hindrance to realising the country's economic and development plans which aim at ending miseries caused by abject poverty.
Data show that up to 33 per cent of the population still lives below poverty line for a country where about 80 per cent of its households are engaged and employed in the agricultural sector.
According to the National Bureau of Statistics (NBS), the annual headline inflation, which represent the rate of change of prices of various commodities declined to 18.2 per cent from 19.8 per cent recorded six months ago.
High inflation has impacted heavily almost in all economic sectors contributing un-proportionally to increased costs of doing business which is translated to skyrocketing living standards.
Despite the slight dipping of inflation rate compared to Kenya that has reached around 7 per cent from over 20 per cent some six months ago, the Bank of Tanzania (BoT) has vowed to continue implementing its reserve money targeting programme using a combination of monetary policy instruments to slow core inflation.
In a letter of Intent from the government to the International Monetary Fund (IMF) demand for currency is projected to rise through June 2012 as crop procurement commences and that BoT will ensure that any associated expansion of reserve money is consistent with its anti inflationary policies.
"For 2012/13, the annual growth rates of average reserve money and the extended broad money supply are targeted at 16.5 per cent and 17.4 per cent, respectively," it stated.
It continued: "This is consistent with the programmed slowing of inflation, while providing room for private sector credit to grow by 20 per cent in the year ending June 2013. The BoT stands ready to tighten liquidity conditions should the need arise," The exchange rate will remain market determined and the BoT will continue to participate in the foreign exchange trading for liquidity management purposes and to smooth out short-term fluctuations, while maintaining an adequate level of international reserves.
The BoT intends to move toward a more active use of interest rate in managing monetary policy and will be seeking assistance from the IMF and others. In this regard, BoT has been working closely with other EAC partner states in coordinating its monetary policy as all partners have begun taking steps toward achieving an EAC monetary union.
With regard to the financial sector stability, the Central Bank in collaboration with other fiscal sector regulators have embarked on a number of initiatives aimed at enhancing steadiness in the monetary area. Some of the measures include enhancing financial stability monitoring and tools, banking regulations, insurance and social security schemes and mobile financial services.
Similarly, the review of regulations relating to the Microfinance Companies and Financial Cooperatives commenced in January 2012, with a view to accommodating changes in the sector. BoT is drafting Agency Banking Regulations to allow banks to extend their outreach through non-banking retail outlets such as supermarkets, petrol stations and other agencies.
Further, the Tanzania Insurance Regulatory Agency (TIRA) is drafting micro-insurance regulations to provide a framework for introduction of insurance products catering for low income households and micro-enterprise operators. The growth of mobile financial services is rapidly expanding financial inclusion, with the number of users of mobile financial services up from 14 million at end-June 2008 to about 22 million at end- December 2011.
The BoT is in the final stages of drafting mobile financial services regulations to license and regulate the sector and address consumer protection issues. The regulatory and supervisory function will be carried out by BoT in collaboration with the Tanzania Communication Regulatory Authority (TCRA).
Financial soundness indicators at the end of March 2012 indicated that the banking system remained sound, profitable and liquid. The banking sector was adequately capitalised with ratios of core capital and total capital to risk-weighted assets of 17.9 and 18.5 per cent, respectively, compared with legal minimum requirements of 10 and 12 per cent.
The ratio of non-performing loans to total loans was 7.5 per cent at end-March 2012, down from 9.3 per cent a year earlier albeit up slightly from 6.7 per cent at the end of December 2011. Personal loans and those for wholesale and retail trade continued to account for some 40 per cent of total loans, outpacing lending to other sectors.
Overall liquidity remains satisfactory with a ratio of liquid assets to demand liabilities of 39.2 per cent, compared to a statutory requirement of 20 per cent. The Central Bank continues to further enhance its regulatory and supervisory effectiveness. For example, the Credit Reference Bureau and Databank Regulations have been finalized and gazetted.
Steps to launch a credit reference system (CRS) are advanced, with a credit databank to become operational by end- September 2012. Prospective private credit reference bureaux have shown interest in applying for licences and a review is being conducted of their eligibility.
An effective and efficient CRS will facilitate information sharing between lenders and thereby address impediments that have boosted borrowing costs. Thus, a combination of these measures by the BoT is believed to bring about impact in bringing down inflation from 18.2 to single digit by June 2013 as it was projected.