Bank of Tanzania cuts reserve requirement to boost lending

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Bank of Tanzania announced that it will cut the proportion of deposits banks must maintain as reserves to 7 percent from 8 percent as of July 1, 2019, an initiative designed to boost lending.

Tanzania does not set interest rates using a benchmark, instead the East African nation imposes a statutory minimum reserve requirement to influence private sector credit growth. Its central bank last cut the reserve requirement in March 2017, when it reduced it to 8 percent from 10 percent.

In a circular sent to all commercial banks, the Bank of Tanzania said “there is still a need for more growth of credit to the private sector in order to support sustainable economic growth”.

The government has embarked on an ambitious programme of industrialisation, but foreign investment has fallen after government interventions in mining and agriculture. The World Bank noted that foreign direct investment fell to 2 percent of GDP in 2017, down from about 5 percent in 2014.

The IMF projected a rate of GDP growth of around 4-5 percent in the medium term, should current policies continue. However, the forecast differed from the government’s projection that the economy will grow by 7.3 percent in 2019 after an estimated 7.2 percent expansion last year.

 

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