Interbank money market rate doubles, borrowing cost rises

Monday March 18 2019

The Bank of Tanzania headquarters in Dar es

The Bank of Tanzania headquarters in Dar es Salaam. PHOTO | FILE 

By The Citizen Reporter @TheCitizenTZ

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

The Bank of Tanzania interbank money market rate report has shown that the rate has increased to an average of 5.49 per cent, ranging between 4.50 per cent and 5.60 per cent on March 15, this year.

This was nearly double the average rate of 2.83 per cent, ranging from 2.75 per cent and 2.90 per cent, in March 15, last year.

Analysts say the increased rate was the result of more demand for cash, mainly by banks, which are extending lending, following a slowdown in non-performing loans (NPLs).

The report also indicated that a total Sh437 billion was traded overnight during the first half of this year, compared with less than Sh300 billion during the second half of last month.

Banking interest rates on loans are currently ranging from 15 and 21 per cent, depending on the risks related to the loans.

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

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

“The central bank will continue to closely monitor and manage movements in banks’ clearing balances in order to sustain the stability of money market interest rates, by using appropriate monetary policy instrument mix,” says a policy document.

“The stability of money market interest rates is critical as the Bank prepares to move to interest rate-based monetary policy framework, where the overnight interbank cash market interest rate will be an operational target instead of the average quantity of reserve money.”