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Central Bank keen on Liquidity Control

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THE Bank of Tanzania (BoT) is to use dual policies to control liquidity in the economy until money markets satisfactorily support interest rate targeting.
Source: Daily News

BoT said since capital and security markets are yet to be fully exploited, introduction of the interest targeting policy would not work effectively.

The central bank chief, Prof Benno Ndulu, told the ‘Daily News’ that the policy change would not be effective as desired, leading to the use of both reserve money and interest rate targeting at the initial stage.

“The old policy will be phased out gradually after the market adopts the new policy,” Prof Ndulu said. He said promotion of the new policy was underway and upon its completion it would be introduced to the market.

“The current policy rate is 12 per cent,” the governor said, but the rate is not regarded as the market benchmark since the policy used to control money does not use interest rate rather other instruments – like Treasury Bills (TBs).

According to International Monetary Fund (IMF), the central bank is collaborating and seeking the assistance from the East Africa Technical Assistance Centre (AFRITAC).

AFRITAC is a collaborative venture between the IMF, recipient countries, bilateral and multilateral donors for technical assistance mainly on capacity building.

BoT said the central bank rates would be computed based on TBs, liquidity stance and other market rates under supervision of the Monetary Policy Committee which will issue the interest rate after a space of time.

Looking ahead, IMF said, the BoT is also in the process of developing a web based questionnaire for evaluating business conditions and inflation expectations and develop indices of leading economic indicators in order to further strengthen its monetary policy framework.

The central bank has it that increasing economic activities that expanded the money markets to bring sophisticated financial systems have obliged the central bank to shift curbing liquidity goal posts.

These changes, according to BoT, brought in new challenges which mostly are positive – like developing further the capital and securities markets.

The challenges including developing money markets such as Debt Market, Dar es Stock Exchange and Foreign Exchange Market that normally fluctuate in either direction on central bank interest rates.

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Posted by on March 19, 2013 in Tanzania News

 

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Central Bank defends govt move on IMF credit

Source: The Daily News, http://www.dailynews.co.tz

The country’s decision to take the IMF’s Standby Credit Facility (SCF) of about 117 million US dollars was termed ‘not unusual’, the Bank of Tanzania (BoT) has said.

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The BoT attributed the decision to assessment of balance of payment needs and external debt sustainability position, while concessionality of the loan was taken on board as well.

BoT’s Governor Prof Benno Ndulu told the ‘Daily News’ that the decision was not based to cushion the export-import deficit but to finance various development projects and programmes.

“This decision is based on our assessment of balance of payment needs, external debt sustainability position… in order to boost economic growth and expedite poverty reduction,” Prof Ndulu said.

He explained: “The disbursement of the external concessional loan does not deviate from the trends that have been observed in the recent past.”

The amount was designed to expedite implementation of development projects, including transport infrastructure, power generation and the gas pipeline, hence decided to borrow from non-concessional sources.

In 2011, the government borrowed 221.8 million US dollars for power generation. In 2012, 213.5 million US dollars was borrowed for construction of gas pipeline.

Official data from BoT shows that total external concessional loans from World Bank, IMF, Japan, African Development Bank (AfDB), France and others has descended considerably from 803.6 million US dollars in 2009 to 512.6 million US dollars in 2010 when the global economy went into crisis.

But after the financial meltdown, the debt levels went down to 289.4 million US dollars in 2012.

The Governor assured the pubic that the ‘decision (was) taken with careful consideration of the country’s debt sustainability status.’

Last week the IMF said Tanzania expressed the intention to draw 114.2 million US dollars to cushion against deterioration in external demand and access to global market financing. The fund is available through the 225 million US dollar Standby Credit Facility (SCF) arrangement for Precautionary Arrangement.

 
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Posted by on February 26, 2013 in Tanzania News

 

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