The Bank of Tanzania's Monetary Policy Committee (MPC) convened on October 2, 2024, and released a statement the following day outlining its monetary policy stance for Q4, 2024. The committee decided to maintain the Central Bank Rate (CBR) at 6.00 per cent, citing stable inflation levels at the lower end of the target range. Other contributing factors included stabilising economic growth, supported by improving domestic and global economic conditions.
The policy stance aligned with market expectations, especially after the US Federal Reserve's rate cut in mid-September, which is anticipated to ease foreign exchange pressures, particularly in developing countries.
However, the CBR's anchor rate--the 7-day interbank rate--has remained above the upper threshold of 8.00 per cent for most trading sessions since early August, indicating tightening liquidity within the banking sector. This prompted the Bank of Tanzania to intervene through the sale of reverse repos since August 22 to address short-term liquidity needs. The rate stood at 9.61 per cent on 4th October 2024.
The MPC's statement further indicated that real economic growth for the first three quarters of 2024 is estimated at an average of 5.6 per cent, with expectations of sustaining this growth rate throughout the year.
The money supply has also expanded moderately, as annual private sector credit growth reached approximately 17 per cent, while non-performing loans (NPLs) declined to 3.9 per cent in August 2024, compared to 5.1 per cent a year earlier.
Additionally, the external sector's performance improved, narrowing the current account deficit to an estimated 3.2 per cent of GDP, down from 4.4 per cent of GDP a year earlier. The shilling's annual depreciation slowed to 10.1 per cent in September 2024, compared to 12.5 per cent in June 2024, while foreign reserves increased by 1.3 per cent over three months, driven by improved foreign inflows from seasonal activities such as tourism and exports, along with a rise in global gold prices.
Since the MPC meeting, tensions in the Middle East have escalated, heightening the risk of a full-scale war between Iran and Israel, which could spread across the region and severely impact oil prices. The conflict intensified after Iran fired ballistic missiles in response to Israel's assassination of key Hezbollah and Hamas leaders between July and September.
Iran, which accounts for approximately 4.0 per cent of global oil supply and holds around 13 per cent of the world's proven oil reserves, is also one of three countries bordering the Strait of Hormuz--a critical chokepoint connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea.
It is estimated that around 20 per cent of the world's petroleum liquids and liquified natural gas (LNG) transit through this strait, highlighting the potential risks to global oil supply should Iran's stability be compromised.
Despite the US opposition, Israel is considering striking Iran's oil facilities as part of its potential retaliation strategy. In response to these developments, US crude futures have risen by approximately 8.0 per cent in less than a week.
Goldman Sachs projects that if Israel proceeds with a strike on Iran's oil infrastructure, crude prices could increase by as much as 20 US dollars per barrel, potentially driving prices to 95 US dollars per barrel--well above the Bank of Tanzania's projection range of 72 US dollars to 82 US dollars per barrel.
A global surge in fuel prices poses two direct risks to Tanzania's economy: rising inflation from increased production and distribution costs and renewed foreign exchange challenges stemming from global inflationary pressures, which may necessitate another round of tightening policies. Domestic fuel prices in the country have already declined by 4.0 per cent on a monthly basis and 8 per cent on an annual basis in October, contributing to the stability of inflation.
Also read: Q4 2024 CBR decision: Can BoT balance inflation, growth and global trends?
Looking ahead, the monetary policy stance in Tanzania and globally will be highly influenced by developments in the Middle East and their impact on global oil prices. Although another rate cut by the US Federal Reserve is still expected before year-end, any upward pressure on inflation could reverse this policy direction.
Domestically, the country is likely to see increasing foreign inflows as it enters the high tourism season in the fourth quarter, along with the harvesting season for cashews, the country's largest agricultural export.
While it may be premature to draw definitive conclusions, there are already signs of improving inflows in the capital market, as foreign participation in purchases has risen. September recorded a net foreign inflow of 25.66m/-, compared to a net foreign outflow of 4.34bn/- in August 2024, marking the first monthly net foreign inflow since April 2023.
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On the other hand, equity turnover in September fell by 51 per cent to 6.93bn/-, with CRDB Bank remaining the top mover, accounting for 42 per cent of total equity turnover for the month. Foreign participation, although still below 10 per cent, saw foreign purchases account for 8.45 per cent of the total, while foreign sales represented 8.08 per cent of total sales.
The two major indices moved in opposite directions: the All-Share Index (DSEI) appreciated by 0.57 per cent, driven by rising equity prices in Nairobi, while the Tanzania Share Index (TSI) declined by 0.86 per cent, following price drops in the two major banks, CRDB and NMB. Five counters saw price gains during the month, while four counters experienced price declines.
A notable highlight for the month was the finalisation of Tanga Cement's transaction at a price of 2,273/- per share, concluding the transfer of majority control from Afrisam to Scancem.
The market now awaits an offer to retail shareholders of Tanga Cement, which, according to the initial transaction announcement, will be set at the final price agreed between Scancem and Afrisam. The price of Tanga Cement shares has increased by 20 per cent since the finalistion news broke.
