Mtwara. The Bank of Tanzania (BoT) will this year adopt a price-based monetary policy as it seeks to protect banks against negative effects of economic volatilities.
Currently, the BoT makes use of the quantity-based monetary policy which was adopted in 1995.
“As indicated in our monetary statement of June last year, BoT intends to adopt this framework as part of the modernisation of our policies,” the BoT director of economic research and policy, Mr Johnson Nyella told journalists here yesterday.
He said with the price-based monetary policy, the interest rates charged by banks will not be affected even when there is an economic volatility. This is unlike the current system whereby any economic hiccup results into negative effects on interest rates.
He said Tanzania is late in adopting the framework due to a number of challenges like unreliable data including high frequency GDP data, which now comes out on quarterly basis.
Other factors, which caused the delay in adoption of the policy include, low level of statistics availability and economic projections rates. He, however, noted that the government has now equipped its statistics institutions to the level that they now issue reliable data. They are now able to project its future plans and decision.
“It is in view of this that the country will now adopt the policy as a way of harmonising its price-based monetary framework with other EAC countries,” he said.
He said the environment is now suitable for the framework following the adoption of the Interbank Cash Market Interest Rate (IBCMR).
“Through this framework, we will have a policy rate, which will be guided by a monetary policy committee that will decide the policy rate,” he said.
He said the IBCMR will either mop out or inject cash to either reduce or increase liquidity.