THE Bank of Tanzania (BoT) has said that the monetary policy used to regulate the liquidity level in the circulation remains to be an efficient way in curbing inflation.
This was said in Dar es Salaam by the BoT economist, Mr Mwankemwa Lusajo, in the ongoing Dar es Salaam International Trade Fair (DITF) along Kilwa Road. As monetary policy measure, is executed in such way to ensure all economic fundamentals function properly.
For example, there is possibility of discouraging investors in government securities where tight liquidity becomes more squeezing. Bonds are some of the instruments used by the government to finance long term projects like infrastructure development in the country.
Thus, according to Mr Lusajo, the monetary policy stance has always to be investors' friendly instead of chasing away the flow of investments into the country.
"The high inflation rate has undesirable effects such as erosion of people's incomes, increasing cost of borrowing, cost of production and cost of living and it discourages domestic savings and impairs investment planning, thus hindering economic growth," he said.
He said the cost of living that touches directly the lives of the people is determined on the basis of relative changes in the average price of consumer goods in the economy.
Mr Lusajo added that, there are many causes of inflation like rising wages, rising imports prices, low production, high production costs, food shortages but the main cause is a faster increase in money supply than goods and services.
For example, when the government spends more than revenue it collects and covers the difference by borrowing from the central bank, it implies printing money which may lead to increase in inflation.
Thus, monetary stance applied by the BoT is always seeking to keep all economic fundamentals in to ensure it favours investors' activities which plays significant role in economic development.
On his part, Mr Charles Sama, also the BoT economist said the Bank controls inflation to keep it low and stable over time in order to promote sustainable growth of the economy.
Thus it is essential to keep low inflation rate because it is an important ingredient of a stable exchange rate and growth of strong export sector. He said the movement of exchange rate also reflects the country's competitiveness against its trading partners.