A cut in the Bank of Tanzania's (BoT) policy rate does not mean loans will get cheaper straight away, a senior official said. Commercial banks have the final say on what they charge borrowers, Mwananchi reported. John Mero, Assistant Manager in the BoT's Monetary Policy Department, spoke to journalists on Wednesday at a training session in Dar es Salaam.
Mero said the Central Bank Rate (CBR) guides interest rates across the financial system but does not cap what banks charge. He said changes to the CBR affect the cost of money in the banking system. They also signal to lenders that they should adjust rates on loans and deposits. Each bank sets its rates based on its own costs, risks and competition, he said.
"Borrowers may not benefit immediately from a cut in the policy rate," Mero said. He added that the size of any cut in lending rates will vary from one lender to another. He said this matters most for small and medium businesses that rely on bank loans to grow and fund daily operations.
Mero said the BoT is working to bring down the high cost of borrowing. Its measures include improving the collateral system, strengthening borrower credit information, increasing consumer protection and pushing for clearer pricing of financial services. He said the bank also wants more competition and efficiency in the sector.
He explained that lowering the CBR aims to make money cheaper. That can push banks to cut lending rates and boost borrowing and investment. Raising the rate makes borrowing more expensive and helps ease pressure on prices. Mero said private sector credit growth reached 33.4% in September. The BoT also tracks the seven-day interbank cash lending rate, which serves as its operational target.
Mero said the BoT moved to an interest rate-based framework after changes in the financial sector weakened the old system. That system relied mainly on the amount of money circulating in the economy. Deputy Governor Dr Rahma Salim said the seminar covers seven key areas of the central bank's work. They include monetary policy, government securities, consumer protection and national payment systems.