Bank of Tanzania (BoT) has pushed back the adoption of interest rate based monetary policy to May from this month.
The BoT Deputy Governor, Financial Stability and Deepening, Dr Bernard Kibesse said they failed to adopt the policy as it waits approval from Monetary Committee Board that normally meets after every two months. "Everything is in order and ready for adoption but we cannot start without receiving an approval from the board.
They will sit next month and implementation starts in May," Dr Kibesse told the 'Daily News' on the sidelines of the launch of CRDB Bank branch in Chato, Geita over the weekend. The deputy governor said everything was ready for shifting from reserve money policy to interest target policy. "Once the board approves the new policy we will launch it to the public... since all are in order," Dr Kibesse said.
Mid last year, BoT expressed its intention to replace the current targets monetary aggregate or reserve money, with a new framework that targets interest rate. The central bank said the interest rate to be targeted in the new framework will be the interbank cash market rate, which is the rate at which banks lend to each other.
Under the new framework the Bank will set and announce a policy rate and take actions in the interbank cash market to keep the interbank cash market rate as close as possible to the policy rate. When he was inaugurating the CRDB Chato branch over the weekend, President John Magufuli asked banks to lower lending interest rate so as to enable many to access loans.
He said since Dr Charles Kimei the Managing Director of CRDB is also the Chairman of Tanzania Bankers Association he should talk to the association members and starting to revisit the rates which are high to most SMEs. Bank sector pundits said the introduction of interest rate based monetary policy framework is a best practice across the world and set to reduce price of money after adoption.
This is a second time that President Magufuli asked banks to lower lending rate. The first time was late last year when he was opening another CRDB branch in Dodoma where he directed BoT to hasten the pace of introducing policy rate so as to have a benchmark for lending rates