Tanzania’s IBCM remains strong in supporting distribution of liquidity.

By Prosper Makene

Tanzania’s interbank cash market (IBCM) remained active in supporting distribution of liquidity among banks, the Central Bank said in its latest Economic Review.

The August Monthly Economic Review (MER) said that total volume of transactions amounted to TZS 1,039.9 compared with TZS 1,305.6 billion in the preceding month.

The MER has further revealed that transactions in 2-7 days tenure continued to account for the largest share of the total market turnover, at 76.1 percent.

It also said that the overall IBCM and 2-7 days interest rates remained low, averaging 4.56 percent and 4.47 percent in July 2021, respectively.

“The overnight interest rate slightly increased to 4.05 percent from 3.90 percent in the preceding month. The Bank of Tanzania continued to conduct repurchase agreements with banks to ensure adequate liquidity,” it said.

The Review underscored that in July 2021, the Bank conducted reverse repurchase agreements (reverse repos) amounting to TZS 142.6 billion, compared with TZS 276.8 billion in the preceding month.

Meanwhile, it said that reverse repos worth TZS 190 billion matured compared with TZS 296.3 billion in June 2021. Interest rate on reverse repos closed at 6.46 percent, up from 5.33 percent registered in the preceding month.

“The Bank of Tanzania participated in the interbank foreign exchange market (IFEM) to support demand for foreign exchange for imports. The market exhibited Overnight interbank rate (RHS) Overall Interbank cash market rate (RHS) Reverse repo sold (LHS) Matured reverse repo (LHS),” it said.

However, the MER has also disclosed the general stability of the value of the Tanzanian shilling against major currencies, saying the local shilling is benefiting from low and stable inflation and moderate current account deficit.

The Bank of Tanzania’s MER said total transactions in IFEM amounted to USD 24.2 million in July 2021, compared to USD 24.7 million traded in June 2021, of which USD 7.6 million was Bank of Tanzania sales.

“The shilling traded at an average rate of TZS 2,310.57 per US dollar in July 2021 compared to TZS 2,310.18 per US dollar in the preceding month. This represents a marginal depreciation of 0.07 percent in the year ending July 2021 relative to the preceding year,” it said.

Noting, “Government expenditure amounted to TZS 2,302.9 billion of which TZS 1,314.1 billion and TZS 988.8 billion were spent on recurrent activities and development projects, respectively.”

“Locally financed development expenditure amounted to TZS 807.0 which was 81.6 percent of development expenditure,” it obersved.

Inflation

On inflation, the Central Bank said that twelve-month inflation remained low and within the target of 3-5 percent for 2021/22, despite edging up to 3.8 percent in July 2021 from 3.6 percent in the preceding month.

“The inflation outturn also was in line with EAC and SADC convergence criteria, which are maximum of 8 percent and between 3-7 percent, respectively,” it said.

It went on saying that core inflation, whose index accounts for the largest share in the consumer price index, was 4.1 percent in July 2021, as in the preceding month.

“Non-food inflation also remained low and stable, rising only slightly to 3.3 percent from 3.2 percent.

Energy, fuel, and utilities inflation increased to 3.6 percent in July 2021 from 3.2 percent in June 2021, driven by prices of charcoal and petroleum products, in the wake of the recent increase in oil prices in the world market,” it said.

Annual food inflation (food and nonalcoholic beverages) rose to 5.1 percent from 4.7 percent, driven by prices of wheat, wheat flour, meat and cassava.

Fuel Prices

On fuel prices, the Review said domestic pump prices of petroleum products continued to increase moderately since June 2020, driven by prices in the world market.

“This trend was contributed by an increase in demand, associated with the recovery of the global economy from adverse effects of the pandemic. In July 2021, prices of petrol, diesel and kerosene registered an annual increase of 39.7, 28 and 24.2 percent, respectively, attributable to high prices in the world market,” it said.

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