Tanzania’s strategic monetary policy

The Bank of Tanzania (BoT) has reaffirmed its commitment to economic stability by maintaining the central bank lending rate at 6% for the fourth consecutive quarter. This decision underscores the bank’s strategic approach to managing inflation, ensuring liquidity, and fostering economic resilience amid evolving global and regional economic challenges. The lending rate, which was initially raised to 6% in April 2024 after being held at 5.5%, remains a critical tool in Tanzania’s monetary policy framework.

Throughout 2024, Tanzania’s inflation rate has remained stable and within the central bank’s target of below 5%. By September, the annual inflation rate was recorded at 3.1%, the same as the previous month. This trend reflects the effectiveness of measures implemented by the BoT to stabilize prices. Controlled food prices and prudent monetary policy have played a significant role in containing inflationary pressures, even as neighboring countries face elevated inflation levels due to global economic uncertainties.

The central bank’s decision to hold the lending rate steady is bolstered by Tanzania’s strong foreign exchange reserves. At the end of September 2024, the reserves stood at approximately $5.4 billion, providing over four months of import cover. This reserve level has been sustained through increased earnings from gold and tourism, alongside regulatory measures encouraging the use of local currency in domestic transactions. Gold remains a cornerstone of Tanzania’s export portfolio, with revenues reaching $3.3 billion in the year to October 2024, up from $2.99 billion in the previous year. The mining sector’s robust performance continues to be a key driver of the economy, reinforcing the government’s efforts to diversify and stabilize export earnings.

The Tanzanian shilling has demonstrated relative stability throughout 2024, trading at approximately TZS 2,400 against the US dollar as of early 2025. This stability has been instrumental in maintaining investor confidence and reducing the cost of imports. The BoT’s targeted interventions in the foreign exchange market and its policy consistency have contributed significantly to this outcome. Additionally, Tanzania’s ability to avoid the steep currency devaluations experienced by some regional peers highlights the effectiveness of its monetary and fiscal strategies.

Tanzania’s competitive lending rate positions it favorably within the East African Community (EAC). While Kenya’s central bank rate currently stands at 12.75%, Uganda’s at 10%, and Burundi’s at 12%, Tanzania’s 6% rate remains among the lowest in the region. This affordability of credit enhances the country’s attractiveness as a destination for investment and business expansion, particularly in sectors such as manufacturing, agriculture, and services. The BoT’s accommodative stance aims to support private sector growth by ensuring that credit remains accessible and affordable.

Infrastructure development continues to underpin Tanzania’s economic growth strategy. Flagship projects such as the Standard Gauge Railway (SGR), improvements in road networks, and expansions in port infrastructure are expected to enhance trade efficiency and reduce logistics costs. These initiatives align with the government’s broader vision to position Tanzania as a regional trade and logistics hub. The infrastructure investments also serve as a magnet for foreign direct investment (FDI), further solidifying the country’s economic foundation.

The private sector remains a vital engine of economic growth in Tanzania. Rising FDI inflows, particularly in energy, agriculture, and mining, reflect the growing confidence of international investors in the country’s economic potential. Natural gas exploration and the development of liquefied natural gas (LNG) projects are poised to transform Tanzania’s energy landscape, creating opportunities for industrial growth and job creation. Additionally, the tourism sector’s recovery has added momentum to the economy, supported by improved connectivity and marketing efforts targeting key international markets.

Despite these positive developments, challenges persist. External risks such as fluctuating global commodity prices, geopolitical uncertainties, and climate change remain potential headwinds for the Tanzanian economy. Domestically, the need for continued infrastructure investment, financial inclusion, and sectoral diversification are critical areas that require sustained attention. However, the BoT’s disciplined approach to monetary policy provides a strong foundation for navigating these challenges while preserving macroeconomic stability.

Tanzania’s emphasis on maintaining a stable and predictable economic environment is further reflected in its approach to regional economic integration. As a member of the EAC, Tanzania plays a pivotal role in fostering regional trade and investment. Its relatively low lending rate and strategic investments in infrastructure enhance its position as a gateway for regional commerce. These efforts complement broader initiatives to promote intra-African trade under the African Continental Free Trade Area (AfCFTA), where Tanzania’s geographical location and resource base provide a competitive advantage.

The decision to hold the lending rate at 6% demonstrates the Bank of Tanzania’s confidence in the resilience of the domestic economy and its ability to sustain growth amidst global economic challenges. By prioritizing stability, liquidity, and affordability, the central bank is laying the groundwork for sustained economic progress, ensuring that Tanzania remains an attractive destination for investment and a leader in regional economic integration.