Tuesday, May 12, 2020

Tanzania cuts key rate, reserve ratio to cushion virus hit

     Tanzania's central bank lowered its benchmark interest rate and reserve requirement to "cushion the economy from adverse effects of COVID-19" and provide additional liquidity to banks, safeguard the stability of the financial sector, and facilitate the financial intermediation process.
     The Bank of Tanzania (BOT) said in a statement from May 12 that its monetary policy committee on May 8 approved a 200 basis point cut in the discount rate to 5.0 percent, providing additional space for banks to borrow at a lower cost and thus signaling lower lending rates.
      The Statutory Minimum Reserves (SMR) requirement was cut 100 basis points to 6.0 percent, as of June 8, while the haircut on government securities was lowered to 5.0 percent from 10 percent for government securities and to 20 percent from 40 percent for Treasury bonds as of May 12.
      "This measure will increase the ability of banks to borrow from the Bank of Tanzania with less collateral than before," BOT said in a statement.
      BOT said it would also provide regulatory flexibility to banks and other financial institutions that carry out loan restructurings to borrowers that are experiencing financial difficulties due to the virus.
     Lastly, BOT said it wanted banks to incentivize their customers to increase the usage of digital payment systems, such as online banking and point of sale systems, and raised the limit on transactions for mobile money operators to reduce congestion in banks.
     Mobile money operators will be allowed to increase their daily transaction limits to 5 million Tanzanian shillings from 3 million and their daily balance can now run to 10 million shillings, up from 5 million.
      "The Bank of Tanzania said it would continue to monitor the impact of the COVID-19 virus on the economy and "take appropriate policy actions to limit the impact."
      Tanzania's shilling was trading at 2,314 to the U.S. dollar today, down 0.7 percent this year.



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