4 December 2012

Tanzania: Banks Seen Borrowing Less From Each Other

THE Interbank borrowing rates have declined to around 3.00 per cent, signifying liquidity improvement while sending signals of reduced cost of borrowing.

The rates, according to the Bank of Tanzania (BoT), traded at between 3.17 per cent and 3.98 per cent in the last two weeks while the lowest trading volume was 8.2m/- and the highest 42.05m/- per session. The central bank data show that the lowest average rate was 2.00 per cent and the highest 6.00 per cent, in the last two months.

By comparison, the rates are the lowest since the beginning of last month that stood at over 6.00 per cent and better off than over 9.00 per cent of September this year. Standard Chartered Bank said interbank volume rose to 25.5bn/- from 8.2bn/- amidst a fall in interest rates in both interbank and on a seven-day Repos.

"Month end led to a spike in interbank borrowing and BoT mopped 10 billion for seven day at 3.25 per cent, a drop of 50bps (basic points)," the bank said on its daily market report. Tanzania Securities said climbing down of the interbank rates "reflects the improving money market environment".

On the other hand, market analysts said descending of interbank rates was good for the economy as it lowered the lending cost, hence stability in the prices of goods and services. They argued that the continued falling of the interbank rates, the facility that sees banks borrowing from each other, to less than two per cent is healthier for the economy as it reduces production costs.

Interbank rates are normally influenced by Treasury Bills maturity rates and end month corporate obligations--taxes and salaries--which left the market well funded. In January, the interbank rates reached 35 per cent, which were the all time levels in the history of the country. The best levels were in 2010 when the rates were less than one per cent in much of the year.

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