Tanzania cuts commercial banks' reserve ratio to 8pct

Mar 23, 2017

The monetary decision is aimed at reducing borrowing costs and spurring economic growth.

Tanzania's central bank has cut the minimum reserve ratio required of commercial banks to 8 percent from 10 percent, a monetary decision aimed at reducing borrowing costs and spurring economic growth. The development which was announced by the Bank of Tanzania governor in a circular to commercial banks will apply to both domestic and foreign currency deposit liabilities. Tanzania's economy has witnessed a steep fall in lending by commercial banks to key sectors including agriculture, manufacturing and construction due to high non-performing loans. The International Monetary Fund (IMF) earlier this year warned that the slow pace of credit growth posed a
risk to Tanzania's growth forecast of 7 percent in the 2016/2017 fiscal year. IMF further advised Tanzania's apex bank to ease monetary policy and boost public spending on infrastructure projects. The change in the statutory minimum reserve which will take effect from April 20, comes two weeks after the regulator cut its discount rate to 12 percent from 16 percent. These monetary decisions by the regulator are expected to ease the ongoing liquidity pressure and encourage banks to lend to the private sector.