The Monetary Policy Committee (MPC) of the Bank of Tanzania (BoT) has set the Central Bank Rate (CBR) or Policy Rate at 5.5 percent for the first quarter of 2024.

This is the first ever CBR decision to be announced since the Bank of Tanzania set January 2024 to start implementing interest rate-based monetary policy framework instead of quantity of money supply.

The MPC made CBR decision during its meeting that took place on January 18, 2024 under the chairmanship of the BoT Governor, Mr. Emmanuel Tutuba.

Reading the MPC statement in front of the media and CEOs of banks and financial institutions, Governor Tutuba said the announced CBR aims at containing inflation within the medium target of 5 percent, supporting economic growth to reach 5.5 percent or more in 2024; and ensuring stability of the exchange rate.

To achieve the goals, “BoT will use monetary policy instruments to align the 7-day interbank rate operating target variable within +/-200 basis points of the policy rate,” Governor Tutuba said.

He said the change to interest rate-based monetary is a significant milestone in monetary policy transformation in Tanzania.

“This forward-looking framework is expected to improve the effectiveness of monetary policy in the changing economic environment, Mr. Tutuba said.

Adoption of the interest rate-based monetary framework also shows the country’s commitment in implementation of the East African Community Monetary Union Protocol. Tanzania becomes the fourth country using this framework in the region, preceded by Uganda, Kenya and Rwanda.

On recent performance and outlook of the economy, the MPC observed weak global growth in 2023, the situation which is expected to persist during the first quarter of 2024 due to geo-political tensions, tightening monetary policy, and economic uncertainties.

The performance of the economy in the Mainland Tanzania and Zanzibar were satisfactory with growth of 5.3 percent during the first three quarters of 2023 and 7.1 annual growth in 2023 for Zanzibar, respectively.

The Governor said inflationary pressures in the country have remained muted declining to 3 percent in December 2023 from 3.2 percent in December 2022. In Zanzibar, inflation decreased to 5.5 percent from 8.1 percent.

The inflation downward trend was driven by monetary and fiscal policies, adequate food supply, stable exchange rate, and moderation in world market prices, particularly oil prices.

Inflation is projected to range from 3-4 percent in the first quarter of 2024.

In 2023, the financial sector remained stable throughout. Revenue collections of the Government (Mainland Tanzania) reached 96 percent of the first half of 2023/24 target and 99.1 percent of the target in Zanzibar.

Improvements were also noted on the external sector with foreign reserves reaching US $5.5bn at the end of December capable of covering more than 4.5 months of projected imports.

The official launching of the interest rate-based monetary policy framework and announcement of the CBR was followed by statements from representatives of the financial institutions and the media who hailed the Bank of Tanzania for that milestone and that will contribute to more openness and contribute to growth.