- BoT continues to implement a monetary policy geared towards containing inflation in Tanzania while supporting the recovery of economic activities.
- A high cost of living, low demand, and stringent financial and monetary conditions have characterised the global economy for the first half of the year.
- The BoT remains confident that the inflation outlook for the remainder of FY2022/23 will remain within the target of 5.4 percent.
The global economic outlook continues to maintain its grimacing face. As such, tough times lie ahead as the Bank of Tanzania (BoT) tightens its monetary policy to contain inflation in the country for the rest of the year.
In its most recent monthly report, the BoT asserted its willingness to constrain money supply to curb inflation. The move is not unique to Tanzania, rather it is a basic economic measure to match the global prevailing monetary policy stance.
The Monetary Policy Committee (MPC), which most recently held its ordinary meeting on 22nd May 2023 approved the toughened stance. The MPC resolved that; “Given the domestic and global economic conditions, the Bank is to sustain the implementation of less accommodative monetary policy in May and June 2023,” in other words, Tanzanians should tighten their belts. Some more. This policy stance will ensure that inflation in Tanzania remains within the target of 5.4 percent in the remainder of 2022/23.”
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Should the BoT lax its monetary measures and increase the money supply, demand for goods would drastically increase. Before the long-term response to the increase in supply, prices will shoot up in the short term, worsening the already bad inflation status.
Supportive monetary and fiscal policies
Consequently, the BoT continues to implement a monetary policy geared towards containing inflation in Tanzania while supporting the recovery of economic activities. As such, the money supply in Tanzania only increased slightly (17.2 percent) in the last month compared to 10 per cent in the corresponding period last year.
An increase in credit facilities to the private sector mainly through commercial banks and other small lenders has helped in effecting the money supply increase. As a result, private sector credit increased this year showing an annual growth of 22.5 percent considerably higher than 13.4 percent in the corresponding period in 2022.
“The increase reflects the recovery of demand for new loans by the private sector, attributable to an improved business environment, recovery of global supply chains…” the BoT explains.
What the BoT is trying to do here is provide supportive monetary and fiscal policies, to back up ongoing economic recovery activities as the country braces itself for the adverse effects of global shocks. It seems to be working, so far.
“Credit to the agriculture sector continued to record the highest growth rate, attributable to monetary policy measures rolled out by the Bank,” reports the BoT which also admits the tougher money supply situation with personal loans accounting for the largest share in outstanding credit to the private sector.
This tougher stance also remains evident in the interest rates charged on loans by commercial banks which recorded a marginal increase, but an increase nonetheless. Worse still, with uncertain demand, supply is also uneven, and coupled with the disrupted distribution chains, things are looking grim.
“Supply chain disruptions have continued to pose challenges for many countries, whereas the ability of policymakers to address emerging challenges remained limited due to higher debt levels,” admits the BoT.
Global economic upheavals and the toll in Tanzania
Around the world economic growth remains beatdown with little optimism. A high cost of living, low demand, and stringent financial and monetary conditions have characterized the global economy for the first half of the year.
Here is how the BoT describes these tough times; “Global economic growth outlook remains uncertain, amidst cumulative effects of the shocks—war in Ukraine, and the ongoing uneven recovery to pre-pandemic economic levels. Inflationary pressures remain pessimistic.”
In reflection of these tough times, “… the Central Bank policy rate hikes continue to take a toll on economic activity, as the prime concern for most economies remains to curb inflation in Tanzania,” admits the BoT.
In view of the global perspective, there is light at the end of the tunnel with the reopening of China’s economy. Since January many have anticipated China’s re-entry into the global market. Speculators have suggested that trade activities by the giant economy could lead to a faster global recovery.
On the downside of things, the protracted war in Ukraine continues to weigh heavily on food prices around the world and more so in Africa.
Despite this fact, Tanzania has remained resilient with its inflation rate being the lowest in the East African Community (EAC) and Southern African Development Community (SADC) so far.
Given this fact, the BoT remains confident that; “The outlook shows that inflation in Tanzania will remain within the targets in the second half of 2022/23, as prices of global consumer goods and inflation in trading partners moderates.”
“Furthermore, inflationary pressures will expectedly ease as the food supply situation in the country improves following ongoing favorable seasonal rains,” prophesizes the optimistic BoT report.
Stringent monetary policy to curb inflation
As of March 2023, inflation in Tanzania has been low and stable compared to other East African countries and the rest of Africa as a whole. Entering into April, inflation eased for the third consecutive month.
Nevertheless, the actual figures show a slight upward edge of inflation. Food inflation (inclusive of non-alcoholic beverages), slowed down to 9.1 percent in April 2023 from 9.7 percent in the preceding month, reflecting an improved supply of food.
To maintain the stability of prices and accessibility of food, Tanzania’s National Food Reserve Agency (NFRA) subsidized food prices for areas with food shortages, the plan is working thus far.
The BoT remains confident that the inflation outlook for the remainder of the 2022/23 Financial Year suggests will remain within the target of 5.4 percent. This confidence from the Central Bank stems from the anticipated global moderation in consumer goods prices, improved food supply, and favorable monetary and fiscal policies.
True to this positive outlook, when compared to the previous month, there are some food crops that actually enjoyed a price drop, an indication of improvement in the food supply situation.
Finally, given the positive trend of the last few months, particularly, the BoT March inflation report that showed price hikes slowed down for the third consecutive month.
“The twelve-month headline inflation declined for three consecutive months, reaching 4.3 percent in April 2023 compared with 4.7 percent in the preceding month, mainly driven by lower commodity prices in the world market and improved food supply in the country and neighboring countries,” sums up the BoT report.
So, the money supply will remain low in the next month or so but with lower inflation in Tanzania, the living standards will not fall any further.
