BoT adjusts rates to ease business borrowing

DODOMA: DEPUTY Minister for Finance, Mr Laurent Luswetula said the Bank of Tanzania (BoT) is adjusting its Central Bank Rate (CBR) in line with economic conditions to help improve access to affordable credit while keeping inflation within the target range.

Mr Luswetula told the National Assembly yesterday that the policy forms part of broader measures to encourage commercial banks to offer loans at more affordable rates.

He said this while responding to a basic question from Mpanda Urban MP, Haidary Sumry (CCM), who wanted to know whether the government saw the need to lower interest rates on business loans to help traders repay their loans on time.

In response, Mr Luswetula said commercial lending rates are determined by market conditions, taking into account various factors including inflation, credit risk, banks’ operating costs and the level of profit targeted by individual banks.

“Authorities are taking policy and regulatory measures to encourage commercial banks to provide loans at more affordable rates,” he said.

According to the Deputy Minister, one of the key measures is the continued adjustment of the CBR by the BoT in response to economic developments.

“The Bank of Tanzania has continued to make changes to the Central Bank Rate in line with economic developments to ensure that inflation remains within the target range, while ensuring sufficient liquidity in the economy to encourage access to credit at affordable costs,” he said.

Mr Luswetula also cited the Price Comparator System (PCS), which enables borrowers to compare interest rates and other charges imposed by different financial institutions.

He said the system is intended to increase transparency and promote competition among commercial banks, which could contribute to reducing borrowing costs for businesses and other borrowers.

Another measure, he said, is the continued use of Credit Reference Bureau databases, which provide banks with information on borrowers’ credit and repayment histories.

He said that access to such information helps reduce banks’ concerns about loan repayment risks and lowers the cost of assessing borrowers.

Responding to a supplementary question from MP Sumry on whether leaving banks to determine lending rates could expose traders to unfavourable borrowing costs, Mr Luswetula said the rates are market-driven but that authorities continued to regulate the financial sector through the BoT.

He said the government is also engaging commercial banks and other stakeholders to explore ways of reducing existing lending rates and creating conditions that would enable more businesses to access affordable financing.

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Mr Luswetula said commercial lending rates were affected by global economic shocks, including the Covid-19 pandemic and the war in Ukraine, which pushed up borrowing costs in many countries.

He added that Tanzania’s commercial lending rates currently range from about 11.9 to 20 per cent, and said efforts were continuing to bring them down.

In another supplementary question, Arif Premji (Mtwara Rural, CCM) raised concern over the BoT’s decision to increase its policy rate from 5.75 to 6.25 per cent, saying the move could lead commercial banks to raise lending rates to the private sector and affect implementation of the 2026/27 national budget.

Responding, Mr Luswetula said authorities are committed to working with commercial banks to reduce lending rates and support the growth of the private sector.

He said more affordable credit will help create more businesses, stimulate economic activity and contribute to the country’s development objectives.

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