The Bank of Tanzania (BoT) has cut the discount rate by three percentage points to 9 per cent, from 12 per cent effective this month to improve liquidity in commercial banks.
This will make it cheaper for commercial banks to borrow from the central bank. And it is the third action that the BoT has taken this year to ensure that commercial banks remain with adequate cash to lend to the private sector, after the government removed about Sh900 billion of its long-term deposits from commercial banks last year. The BoT cut the discount rate from 16 per cent to 12 per cent in March. In the same month, BoT reduced the statutory minimum reserve of commercial banks from 10 per cent to 8 per cent to, also, enable banks have more cash at their disposal.
The moves by the central bank are a reaction to concerns from the private sector over a reduction in lending to productive sectors occasioned by both declining in spending by the public sector since November 2015 when President John Magufuli came to power and the remove of the hundreds of billions of shillings of government money from the commercial banks .
But it is obvious, it seems, the first two actions taken by the central bank to increase liquidity did not produce desired results as evidenced by the Monthly Economic Review reports of the BoT. This is why it has necessitated another action from the central bank.
We hail the central bank’s move, which we hope will produce desired results this time.
However, we think more should be done to ensure commercial banks loan more to the private sector and at reasonable interest rates.
The government must do more to address issues such as Identity Cards, postal physical addresses as well as improving business climate to make local businesses more competitive.