Dar es Salaam. The monetary policy committee of the central bank has raised alarm over high interest rates in the wake of implementing measures to offset the negative impact of Covid-19 to the Tanzanian economy.
The team which is part of the Bank of Tanzania’s board, chaired by the governor, said in a statement yesterday that the sluggish reduction in the interest rates charged by banks and other financial institutions would economic growth which is already threatened by the coronavirus pandemic
“….The monetary policy committee observed with concern the sluggishness in the pace of reduction of interest rates,” the commit-tee said in a statement signed by the governor of the central bank Prof Florens Luoga.
The committee which its meeting on Friday was generally happy with the performance of the economy which expanded by 5.7 per cent in the first quarter even as the global economy is projected to go into recession in 2020.
The impact of Covid-19 hit some sectors such as tourism and entertainment due to measures such as lockdown and closure of borders which were applied many countries to curb spread of the disease.
Tanzania government projects the economy will grow by 5.5 per-cent this year, down from earlier projection of 6.9 percent due to the impact of Covid-19.Much as the central bank officials are scratching heads to rectify the situation, economists point to a difficult task ahead considering the current economic patterns.
Prof Delphin Rwegsira of the University of Dar es Salaam Economics Department said even if BoT pursues accommodative monetary policy, it cannot reduce interest rates when risk of lending is still high during and after Covid-19.
“To be able to help investors in this period it is imperative to reduce cost of investing especially in sectors that have been hit hard with Covid-19,” he said.
He noted that when economic activities start to pick up the interest rates will automatically reduce. Prof Honest Ngowi of Mzumbe University said commercial banks interest rate are high because the cost of doing business for banks is also high.
“The banks cost of doing business is high and they need to get profit and to do so they have to charge high rates,” he said. He said the banks did not much know their customers as the country just recently introduced the credit reference bureau.
“Banks also get credit from other lenders in order to offer loans… so if they are charged high rates, they will also charge high rates,” he added. The BoT director of economic research and policy, Dr Suleiman Misango said the central bank has been directed to put up strategies to reduce high interest rates charged by banks and financial institutions. “When we have a solution we will report back to the MPC who have the final decision on the way forward,” he said.
Recently, the central bank undertaken key monetary policy measures to offset the impact of Covid-19 and protect the financial sector. The measures include lowering the statutory minimum reserve requirement from seven to six percent to provide lenders with additional liquidity.