INTEREST rates slowed down in the first six months (H1) thanks to Bank of Tanzania (BoT) accommodative monetary policy stance aimed at pushing an expansionary policy to increase liquidity in the economy.
According to Capital Market Semi-Annual Report by Orbit Securities Limited, lending rates ranged between 16.87 per cent and 17.21 per cent compared to a range between 17.00 per cent and 17.21 per cent at the beginning of the year.
On the other hand, deposit rates ranged between 7.36 per cent and 8.10 per cent compared to 7.33 per cent and 9.50 per cent in the beginning of the year.
During late last month BoT reduced banks’ reserve requirement ratio to 7.0 per cent from 8.0 per cent so as to allow more liquidity.
Liquidity in the banking sector deteriorated since quarter four last year as credit growth, especially to the private sector, was picking up after a major slowdown in 2017.
Credit growth to the private sector grew to 7.3 per cent in January from 0.7 per cent in April last year and has improved to double digits of 10.6 per cent in April this year.
Amounts traded in the Interbank Money Market almost doubled from 2.59tri/-during first half of the year 2018 to 4.30tri/-in the first half this year.
The rise in volumes traded corresponds with the rise in the weighted average interbank rates by 387bps from 1.88 per cent during the close of June 2018 to 5.75 per cent during the close of June this year.
The rise in volumes traded and interbank rates commensurate a tightening liquidity experienced in the banking sector since late 2018 when credit growth to the private sector caught significant growth momentum and a new wave of credit demand in the beginning of this year after the completion of the tax amnesty in December 2018.
Another factor displaying tightening liquidity in the banking sector is the increase in amounts and rates of reverse repo sales by the BoT to commercial banks.
The reverse repo sales are a strategy used by the central bank to inject liquidity into the banking system.