Kijaji was responding to question raised by Member of Parliament from Zanzibar Machano Othman Said who wanted to know when the government will issue indicative rates to commercial banks so as to reduce the charges from the current 17 to 20 per cent to between 10 and 12 per cent.
Neighbouring Kenya last year passed a law capping interest rates charged by commercial bank against opposition from banking sector stakeholders including the country’s central bank. The law caps the rates at 4 per cent above the country’s central bank benchmark rate, which was 10.5 per cent.
“Changes in Tanzania’s 1991 Fiscal Policy led to the government’s withdrawal from involvement in banking activities, effectively leaving forces of demand and supply to determine interest rates and other products in the financial sector,” Dr Kijaji said.
While the government through Bank of Tanzania (BoT) remains the regulator of the banking sector, the interest rates will be determined by the market without interference by the government, the minister said.
Banks will continue to charge interest rates according to the market price and other factors applicable such as the type of the customer and the risk of borrower as established by the banks as has been the case in the country.
The reason the government will desist from imposing such a decision is that once the measure is imposed, the commercial banks will pile the blame on the government and resist any punitive measure by BoT when they underperform or make losses, the minister said.
She added that the good thing with free market in bank interest rates is that the higher the rates in the commercial banks, the higher the rates of government’s treasury bonds. She gave an example of interest rates by June 2016 which was13.67 per cent, with that of treasury bonds being 11.52, a difference of 2.25 per cent.