Interbank money market rate doubles, cost of borrowing increases

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Dar es Salaam. The interbank money market rate has doubled in a year, indicating the rising cost of borrowing.

The Bank of Tanzania’s interbank money market rate report showed that the rate increased to an average of 5.49 percent, varying between 4.50 percent and 5.60 percent on March 15 of this year. year.

This is almost double the average rate of 2.83%, ranging from 2.75% to 2.90%, on March 15 of last year.

Analysts say the rate hike is the result of increased demand for liquidity, mainly from banks, which are expanding their lending, following a slowdown in non-performing loans (NPLs).

The report also said that a total of Sh 437 billion was traded overnight in the first half of this year, compared to less than Sh 300 billion in the second half of last month.

Bank interest rates on loans currently range from 15 to 21 percent, depending on the risks involved in the loans.

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However, in its new monetary policy statement for February this year, the central bank maintained that interbank money market interest rates will continue to be market determined.

The BoT stated in its policy that it will continue to promote the development of a more transparent and efficient interbank spot market in order to improve price discovery and reduce interest rate volatility, while promoting the mechanism. transmission of monetary policy signals.

“The central bank will continue to closely monitor and manage the movements of banks’ clearing balances in order to maintain the stability of money market interest rates, using an appropriate combination of monetary policy instruments,” said a document. policy.

“Stable money market interest rates are essential as the Bank prepares to move to an interest rate based monetary policy framework, where the overnight interbank market interest rate will be a operational target instead of the average amount of reserve currency. “


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