BoT: Tight monetary policy to stay

Prof Ndulu
The Bank of Tanzania (BoT) will continue implementing its tight monetary policy until the inflation rate reaches the required level as the fiscal body expects bright economic growth.
BoT’s governor, Prof Benno  Ndulu, said on Friday that despite the fact that inflation rate was declining at a slow pace, his institution as a fiscal agent of the government would continue tightening liquidity – a policy that reduces money from circulation to stop unnecessary expenditure which pushes up prices.

He was also optimistic that the economy would continue performing well in the second and third quarters following good signs in various sectors.

The GDP grew at 7.1 per cent in the first quarter of 2012 compared to 5.1 per cent recorded during the same period last year.

“Our economy is still on the right track as we struggle to curb the inflation rate. We are going  to tighten monetary policy until we are satisfied with the level of the inflation rate. 

The policy has stabilised the exchange rate for eight straight months and the inflation rate  had slowed,” said Prof Ndulu when briefing journalists at the BoT headquarters. The government targets the inflation rate to come back to the single-digit come June.

The central bank introduced tight measures last November aimed at reducing supply of money in the circulation and pump out more foreign currency when the inflation was soaring alongside  the weakening shilling.

BoT increased the bank rate from 7.58 to 9.58 per cent in October and 12 per cent in November, a figure which remained until this June. Bank rate is the rate of interest the Bank of Tanzania charges on loans it extends to commercial banks and overdrafts to government.

The local currency recorded its lowest historic mark last October at about Sh1,850 per dollar. The inflation rate was at 17.9 per cent by then and reached the climax at 19.8 per cent in December.

The exchange rate remained stable since January this year for eight consecutive months at between Sh1,500 and Sh1,600 per dollar while the inflation rate has been declining for the last seven straight months although at a slow pace.

According to the recent consumer price index of the National Bureau of Statistics, the inflation rate declined from 19.8 per cent last December to 19.7 per cent in January and consecutively up to 15.7 per cent this July.

“We expect this trend will continue. Prices of food and energy which are the main components of the price index have not yet increased this time,” emphasised Prof Ndulu.
Source: The Citizen,, reported by Alawi Masare
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