Interest rate cut most welcome
Advertisement

Editorial
Typography

BANK of Tanzania (BoT) Governor, Professor Benno Ndulu, met chief executives of banks and financial institutions in Dar es Salaam last Friday and asked them to consider cutting lending rates to make loans more affordable.

The meeting followed BoT’s move to reduce its discount rate to 12 per cent from 16 per cent effectively from Monday last week, the first time it has lowered borrowing costs since 2013, after a steep drop in private-sector credit growth last year.

In a letter to the banks, the Central Bank said the revised discount rate took into account the prevailing 91 and 182-day weighted average yields and the monetary policy stance geared towards sustaining price stability

It will also be used to discount Treasury securities. Interest rates are one of the most important aspects of the economy. They influence the cost of borrowing, the return on savings and are an important component of the total return of many investments.

It should be noted that the new development by the Central Bank came in the backdrop of steep fall in credit growth to the private sector last year which does not augur well with efforts to promote private sector as the engine of growth.

Credit to the private sector grew by only 7.2 per cent in the year ending December 2016, compared with 24.8 per cent in the year ending December 2015. This was associated with the banks’ elevated cautiousness in lending in the face of increasing non-performing loans (NPLs) and low foreign budgetary inflows.

The sharp decline has hit hard key sectors, including agriculture, manufacturing, transport and communication and construction. It is no surprise that the activities under these sectors could not grow as expected, causing hardships to people and threatening growth and development prospects.

It is against the backdrop of these new developments that we support the Central Bank move to cut lending rates and ask chief executives of commercial banks and financial institutions to do the same to boost credit growth.

Lower interest rates make it cheaper to borrow and boost spending and investment as consumers and firms are encouraged to take loans to finance greater spending and investment.

Advertisement
Advertisement
Advertisement
www.cardealpage.com
CardealPage Co. Ltd
www.habarileo.co.tz
Gwiji la Habari Tanzania
www.tsn.go.tz
Official Website for TSN
Sponsored Links
Advertise Here
Advertisement