BANK of Tanzania (BoT) has slashed down its discount rate by three per cent from 12 per cent to nine per cent to improve lending rates to customers.
The cut, announced in circular to commercial banks over the weekend, comes into effect from today.
"The discount rate which is applicable to banks borrowings from Bank of Tanzania as a lender of last resort will also be used to discount the Treasury Securities," the BoT's Deputy Governor Administration and Internal Control, Julian Raphael said in the circular.
This is the second time major policy stance by the central bank to prop up lending to the private sector since President John Magufuli came to power some two years ago and following a steep drop in private sector credit growth last year.
In March this year, the Central Bank of Tanzania slashed the discount rate by 4 per cent from 16 per cent to 12 per cent improve lending rates on their customers.
It was the first time it has lowered borrowing costs since 2013. The central bank then asked commercial banks to consider lowering their lending rates to help spark credit growth after a steep drop in private-sector credit growth last year.
Lending to the private sector grew by 2.5 percent in 2016 after expanding 26.8 percent a year earlier, according to data from the central bank.
New lending to the agriculture, construction, transport and communication sectors was dramatically curtailed after a spike in non-performing loans.
Analysts view the rate cut as a measure to stimulate growth by encouraging banks to lend rather than investing in Treasuries and government bonds. In Tanzania, interest rates decisions are taken by the Bank of Tanzania.
The Bank of Tanzania official interest rate is the discount rate.
According to Trading Economics, interest Rate in Tanzania averaged 12.19 percent from 1972 until 2017, reaching an all time high of 67.50 percent in December of 1994 and a record low of 3.70 percent in October of 2009.