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.