AfricaPress-Tanzania: BANK of Tanzania (BoT), has said liquidity in the banking system has remained adequate with growth of money supply been fairly high.
The central bank said this in its latest monthly economic report as it continues to intensify accommodative monetary policy measures in order to cushion the economy from the impact of Covid-19.
The BoT on Tuesday announced various measures, including reducing the discount rate to historical low, to boost financial activities and to offset Covid-19 effects on the economy.
The central bank lowered the discount rate from 7.0 per cent to 5.0 per cent from Wednesday, in a bid to increase liquidity space in the financial sector.
The last time BoT lowered the rate was almost two years ago.
“This measure will provide additional space for bankers to borrow from Bank of Tanzania to lower costs, thus signalling lower lending rates by banks,” BoT said in a statement.
Furthermore, the central bank’s Monetary Policy Committee that met recently cut statutory minimum reserve requirement from 7.0 percent to 6.0 percent.
“The measure expected to provide additional liquidity to banks,” the statement said.
However, the implementation starts early next month. The haircut for treasury bills is from 10 percent to 5.0 percent and for treasury bonds by half from 40 percent to 20 per cent from yesterday.
This is expected to increase banks’ borrowing from the central bank with less collateral than before.
In another move to contain the economy from contracting, BoT is asking banks and other financial institutions to thoroughly assess borrowers’ financial difficulties due to Covid-19 towards restructuring loan repayments.
The extended broad money supply (M3), grew by 9.9 percent in the year ending March 2020, same as in the preceding month, but was higher than 5.0 percent in the corresponding month in 2019.
The expansion of M3 resulted from cumulative impact of build-up of foreign assets by the Bank of Tanzania, which injected shilling liquidity. On month-to-month, M3 decreased by 0.6 percent.
Broad money supply (M2), grew at an annual rate of 10.8 percent compared with 10.3 percent and 4.4 percent in the preceding month and in March 2019, respectively.
Net foreign assets of the banking system grew strongly by 17.5 percent in the year ending March 2020 compared with 12.4 percent in February 2020, and a contraction of 6.1 percent in March 2019.
The outcome was largely on account of increase in foreign asset holding of the Bank of Tanzania, through purchase of foreign exchange from the central government and banks.
