Relief as interbank rates fall

Dar es Salaam. Interbank lending rates have fallen further this week, raising hope that - costs charged by commercial banks, when issuing loans to individuals and the productive sector, will also go down.

Interbank lending rates are interests charged on short-term loans made between banks.

Overnight interbank rates slowed to the weighted average rate of 2.92 per cent on Tuesday this week, the lowest in five months.

Bank of Tanzania (BoT) interbank money market for Tuesday showed that overnight rates reached the highest level of three per cent, while the lowest level was 2.75 per cent during the opening day of the week.

That was a drop from the previous session, whereby the highest level was recorded at 3.50 per cent, while the lowest level was three per cent.

The rates have also remained stable at below four per cent over the last seven weeks, suggesting that the monetary stress was being eased in banking sector. Analysts are of the view that the easing of the situation points to the fact that the liquidity situation in the banking sector is improving as the festive season approaches.

“This means that the market has sufficient liquidity during this time as we approach the festive season,” Treasury official from Diamond Trust Bank Noela Msacky said.

She told The Citizen in an interview yesterday that the central bank had also reduced the discount rate to nine per cent last month from 16 per cent, which has improved the liquidity situation in the banking sector.

Discount rates are the rate of interest that BoT charges on loans extends to commercial banks and overdrafts to the government.

“The central bank is now pushing to further reduction in the discount rate to six per cent to improve the liquidity situation, which will translate into cheaper loans to borrowers to stimulate economic growth,” she said.

However, she noted banks had been cautious about lending the private sector due to a volatile economic situation and raising non-performing loans.

She further said banks had been so selective to what kind of borrowers they wanted to loan and qualifiers might be enjoying eased borrowing rates.