Tight Monetary Policy Pays Off

Tanzania has recorded a decrease in annual growth of extended broad money reflecting the impact of the tight monetary policy stance adopted by the Bank of Tanzania (BoT).
According to BoT, the annual growth of extended broad money was 11.1% in November 2012, compared to 21.1% recorded in the corresponding period in 2011.
"The deceleration in the annual growth of extended broad money was explained by contraction in the growth of net foreign assets of banks (NFA), coupled with slowdown in the growth of net government borrowing from the banking system and credit to the private sector," the BoT governor, Prof Beno Ndulu said.
The NFA of banks contracted by 37.6% in November 2012 compared to the growth of 31.6% in November 2011.
Prof Ndulu said that on net basis, the government borrowed $204m (Tsh328.5bn) from the banking system, compared to $485.9m (Tsh782.3bn) recorded in the year ending November 2011.
In November 2012, the overall time deposit rate increased to 8.40%, from 8.29% in October 2012 and 6.74% registered in November 2011, partly reflecting deposits mobilization efforts and increased competition among commercial banks.
According to the recently BoT's monthly economic review report, development in lending rates was divergent across different maturities.
The overall weighted average lending rate was 16.05% in November 2012, compared to 16.44% in October 2012 and 14.13% recorded in the corresponding period in 2011.
The spread between 12-month deposit rate and one year lending rate narrowed to 5.08% in November 2012 from 5.47% recorded in November 2011.
On the other hand, the total volume of transactions in the inter-bank cash market in November 2012 amounted to $343.1m (Tsh552.5bn), compared to $416m (Tsh669.9bn) registered in October 2012, with overnight transactions accounting for 57.3% of the total transactions.The overall interbank cash market rate decreased to 4.56% from 8.42% recorded in the preceding month. Overnight interbank cash market rate decreased from 7.85% in October 2012 to 4.15% in November 2012.
"These developments, reflects improved liquidity condition among banks during the month under review," it said.