The Bank of Tanzania (BoT) is to use dual policies to
control liquidity in the economy until money markets satisfactorily support
interest rate targeting.
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.
Source: The Daily News, www.dailynews.co.tz, reported by Abduel Elinaza in Dar es Salaam
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