Tanzania's tight monetary stance lifts deposit rates

The measures to tighten money in circulation are said to push up commercial banks scrabble for deposits in the market forcing the rates to climb in May.

The Bank of Tanzania (BoT) instituted tight measures in first half of this year to rescue the shilling from further collapse by reviewing statutory minimum reserve by 2.0 per cent to 10 per cent.

The move, according to industry sources, increases the demand for deposits to make the costs of borrowing expensive.

Bank M Deputy Chief Executive Officer Jacqueline Woiso told 'Daily News' earlier this week that the cost of mobilising deposits was pushed up by liquidity tightness.

"The liquidity situation affects all (money market) sectors, as there is no money in circulation," Ms Woiso said, "it also affect lending position".

To counter the situation, Bank M planned a right issue and senior debt in the second half of this year and expects to raise 30bn/-.

The BoT May economic review shows that on month-to-month basis the overall deposit rate averaged 9.01 per cent compared with 8.10 per cent, while 12 months deposit rate rose to 10.66 per cent from 10.45 per cent.

Also, CRDB Bank Managing Director Dr Charles Kimei said that as the result of money squeeze the demand for deposits increased overtime to lift up costs.

He said CRDB looked for optional venues to raise more fund for lending as customer deposits dwindled, among them borrowing from international institution at reasonable costs.

Dr Kimei, who also is Tanzania Bankers Association chair, said also CRDB is venturing on a fund mix to counter deposits scarcity at the moment.

BoT report shows that interest rates on loans were somewhat mixed, with overall lending rate easing to 16.10 per cent from 16.22 per cent, while short-term lending rates (up to one year) edged up to 14.27 per cent from 13.68 per cent.

"As a result, the spread between 12-month deposit and lending rates widened to 3.61 percentage points from 3.23 percentage points in preceding month," the report shows.

The tight liquidity management instituted by the central bank has pushed up banks' demand for deposits driving up interest at the benefit of depositors.
Source: Daily News, reported from Dar es Salaam, Tanzania
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