Tanzania central bank cuts interest rate for banks

The Bank of Tanzania has reduced its discount rate for commercial banks from seven percent to five percent, with effect from Tuesday.

The central bank said in a statement that the measure would provide additional space for banks to borrow from it at a lower cost, thus signaling lower lending rates by banks.

It also lowered the statutory minimum reserves requirement for commercial banks to six percent from seven per cent, adding, “The measure is expected to provide additional liquidity to banks.”

The Governor, Bank of Tanzania, Prof. Florens Luoga, said the Monetary Policy Committee of the bank met on May 8, 2020 and approved various policy measures to cushion the economy from adverse effects of COVID-19.

“The aim of measures is to safeguard the financial sector stability and continue facilitating the financial intermediation process,” he said.

The central bank said it would reduce haircuts on government securities, from 10 percent to five percent for Treasury bills, and from 40 percent to 20 percent for Treasury bonds, with effect from May 12, 2020.

“The measure will increase the ability of banks to borrow from the Bank of Tanzania with less collateral than before,” it added.

It said banks and other financial institutions should thoroughly assess financial difficulties experienced by borrowers due to COVID-19 in respect of loan repayment, discuss on the possibility of restructuring of loans, and could grant loan rescheduling thereof, on a case-by-case basis.

“The Bank of Tanzania will provide regulatory flexibility to banks and other financial institutions that will carry out loan restructuring in a transparent and impartial manner,” Luoga said.

Mobil money operators were directed to increase daily transaction limit to customers, from TZS 3,000,000 to TZS 5,000,000 and daily balance from TZS 5,000,000 to TZS 10,000,000.

The bank said, “This measure will encourage customers to use digital payment platforms for transactions, thereby reducing congestion in banking premises.

“Banks are also advised to incentivise their customers to increase usage of digital payment systems for transactions, such as online banking and point of sale systems.”