BANK of Tanzania (BoT) will maintain the accommodative monetary policy stance to stimulate further recovery of growth of private sector credit and general support of various economic activities.
According to BoT Monetary Policy Statement Mid- Year Review 2017/18, BoT will continue to closely monitor and manage movements in banks' clearing balances to instill stability of money market interest rates
. The stability of money market interest rates is critical as the bank plans to adopt interest ratebased monetary policy framework, where the overnight interbank cash market interest rate will be an operational target instead of average reserve money.
"BoT has made necessary preparations to facilitate smooth adoption and operation of the new monetary policy framework under the interest rate-based framework," stated the report. It added, these include development of an electronic interbank cash market trading platform, operational guidelines for interbank cash market, and General Master Repurchase Agreement (GMRA) to improve repo operations.
The trading platform will help banks to trade smoothly online and in a transparent manner and thus facilitate price discovery.
BoT has also extended the maturity spectrum of eligible treasury securities to be used as collateral by accepting all maturities of government securities with prescribed margins. This contrasts with the previous arrangement where only government securities with remaining maturity of not more than 180 days were accepted.
This move will also help to address the problem of market segmentation. Under the new framework, the Central Bank Policy Rate (CBR) will be decided by the Monetary Policy Committee and announced to the general public.
The Bank will take policy actions to keep the Interbank Cash Market (IBCM) rate close to the policy rate. It is envisaged that the policy rate will be bounded by rates pertaining to standing facilities that will be available to take care of liquidity shortages or excesses.
Interest rates will continue to be market determined and the Bank will continue to promote development of a more efficient interbank cash market in order to improve price discovery and reduce interest rate volatility, while promoting transmission mechanism of the monetary policy signals.