|
BoT rings inflation alarm bells
2008-03-27 09:00:44
By Perege Gumbo
The Bank of Tanzania (BoT) says huge foreign monies coming to Tanzania as private investments, loans and grants may inflate the economy, unless otherwise.
Much of the private and public funding targets various undertakings seen to be helping Tanzania achieve its Millennium Development Goals (MGDs), locally defined as Mkukuta.
The BoT`s midterm review of the country`s monetary policy released last month expresses fears over the short term impact of generating \"excess liquidity pressure``, which, if not well managed could easily fuel inflation.
In managing the excess liquidity, the Bank says would maintain a balance across the three key instruments available to it-selling foreign exchange, selling Treasury bills, and repurchase agreements.
``The Bank will collaborate with government in ensuring that idle government balances in commercial banks were transferred to the Bank of Tanzania to reduce excess liquidity in the banking system`` it states in part.
However, the stated measures would work in line with appropriate government\'s expenditure management.
The review which was signed by the new BoT Governor Professor Benno J. Ndulu underlined that the Bank would participate fully in the broad based structural reforms currently taking place in the economy, including facilitation of the second generation financial sector reforms.
The second generation financial sector reforms seek the legal and institutional arrangement that will allow things alike lease financing and lending to farming happen smoothly.
BoT realignment of monetary policy strategies come in the wake of revelations that the average inflation rate has increased further to 13.1 percent in 2007 from 11.4 percent annual inflation average recorded in 2006.
The heightened prices are said to be mainly due to high food prices in time of food shortages and spillover effects of the rising international oil prices to other domestic prices.
The report highlights first half of 2007/2008 with concerns over high and volatile yield on government securities-which increased the cost of liquidity management and also affected commercial banks lending to the private sector.
During the first half of 2007/08, the economy received substantial amounts of both public and private foreign exchange inflows including budget support fund and foreign investments.
``To sterilise the resulting excess liquidity, the Bank issued additional Treasury bills, complemented by resumed net foreign exchange sales and frequent use of repurchase agreements`` it adds.
On the other hand, the government implemented an effective expenditure management policy, coupled with increased revenue collections which enabled the Bank to bring monetary growth back to track, especially beginning November 2007.
Following the need to address high and volatile Treasury bill rates, the Bank reduced over dependence on Treasury bill for liquidity management by increasing sales of foreign exchange.
The measures were followed by the banks decision to reduce the frequency of treasury bills auctioning from weekly to once fortnightly and treasury bonds to once a month, the move aimed at fostering competitive bidding, and stimulation of secondary trading securities.
According to the bank, the efforts have stated paying as the overall weighted average Treasury bill yield for all maturities declined significantly from 17.07 percent in June 2007 to only 11.40 percent in December 2007.
Overall time deposit rate has improved from 7.83 percent in June 2007 to 8.26 percent in December, 2007 while 12 month deposit rate increased from 9.25 percent to 10.2 percent.
The lending rate, on the other hand dropped slightly from 16 percent to 15.25 percent; and negotiated rates became even better.
|
