Bank of Tanzania (BoT) monthly economic review for May shows interbank cash market’s overnight interest rate averaged 4.12 percent, up from 2.10 percent in the preceding month of March.
The interbank cash market (IBCM) remained active in supporting the distribution of shilling liquidity in the banking system, according to BoT.
Total value of transactions amounted to 2.1trn/- in April 2023, surpassing the amount recorded during the previous month, which amounted to 1.9trn/-.
Transactions of 2-7 days remained dominant, accounting for 73.9 percent of the market share, whereas the share of overnight transactions decreased to 5.8 percent from 9.1 percent in March 2023.
The overall and 2- 7 days’ IBCM interest rates remained almost unchanged, averaging 4.92 percent and 4.88 percent, compared with 4.85 percent and 4.91 percent in the preceding month, respectively.
Henry Lesika, the financial analyst based in Dar es Salaam told The Guardian yesterday that the interbank cash market remained sufficiently in April with the majority of liquidity exchange between banks meant to cover short term Business As Usual (BAU) cash flow mismatch.
‘However, as we approach end of fiscal year coupled with Monetary Policy Committee (MPC) meeting decision to continue with less accommodative monetary stance, players in the interbank cash market are expected to get more conscious on their funding requirements in anticipation of outward liquidity flow to the government coffers. This could translate to pressure in the IBCM,” he noted.
However, this has not affected the credit issuance to private sector, as well as borrowing interest rates structures.
Credit extended to the private sector grew by 22.5 percent in the year ending April 2023, compared with 13.4 percent in the corresponding period in 2022, according to BoT review.
The increase reflects the recovery of demand for new loans by the private sector, attributable to an improved business environment, recovery of global supply chains, supportive monetary and fiscal policies, coupled with the lagged impact of policy reforms pursued by the Bank in support of agriculture sector, the central bank notes.
Growth of credit to the agriculture sector remained the highest, growing at 36.1 percent, partly attributable to credit extended under the 1trn/- special loan facility and Statutory Minimum Reserve requirement (SMR) relief to banks that provides loan to agricultural activities at the rate below 10 percent.
In its meeting last month, the MPC approved the BoT to continue implementing less accommodative monetary policy to contain inflation while ensuring an adequate supply of liquidity in the banking system in support of credit intermediation and recovery of various economic activities.
In October last year, a Memorandum of Understanding (MoU) between Frontclear and BoT was signed to create an umbrella guarantee facility to develop a more stable and inclusive interbank market among local banks in Tanzania.
The measure aimed at helping more banks to participate more actively in the interbank money market.
Under the MoU, Frontclear in partnership with the UN Economic Commission for Africa (ECA) conducts diagnosis of the money and interbank market and propose measures to further deepen the market in consideration of the prevailing local and international markets.
The interbank market has been limited to the top players because they lacked the risk appetite to deal with smaller banks which in turn affect the level of credit the smaller banks could extend to their customers.
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