Bank of Tanzania (BOT )to Add Interest Rate to Monetary Policy Instruments
The Bank of Tanzania (BOT) will add
interest rates to its monetary policy instruments by the end of 2016.
The announcement was made by Johnson
Nyela, Economic Research and Policy Director at BOT, on September 14th 2016.
Nyela indicates that BOT is in the final
stages of the process of adopting interest rates as an instrument for
conducting monetary policy.
The use of interest rates as
monetary policy instrument involves altering base interest rates, which
ultimately determine all other interest rates in the economy.
The base rate is the interest rate
at which the Central Bank lends money to commercial banks.
Currently (2016), the BOT monetary policy
instruments include Open Market Operations (OMO) for government securities, as
well as purchase of foreign currency and minimum reserve requirements. Through
OMO, BOT buys and sells government securities in the open market to expand or
contract the amount of money in the banking system.
BOT 2016–2017 Monetary Policy
Targets BOT’s 2016–2017 monetary policy targets include 20.5% annual growth of
private sector credit, up to 14.8% annual growth of M3 (broad money supply), up
to 13% annual growth of average reserve money, and maintaining adequate levels
of gross official reserves.
Gross official reserves include BOT’s holdings
of external assets, available to the Bank for direct financing of balance of
payments.
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