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The Bank of Tanzania significantly modifies its approach to economic management

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  • Bank of Tanzania transitions from a 'quantity of money' policy to an interest rate-based approach.
  • The move aligns Tanzania with East African nations' monetary policy strategies.
  • Introduction of key interest rate (CBR) to guide economic control.

The Bank of Tanzania recently announced that it would be pivoting from a ‘quantity of money’ style monetary policy to a more updated interest rate-based monetary policy structure, as seen in the Tanzanian news publication, The Citizen. 

What the shift means

The shift in policy structure denotes that moving forward, the bank will rely on interest rates as the primary engine for controlling inflation and by extension, economic growth, as opposed to determining the level of inflation merely by the denominations in circulation.

Emmanuel Tutuba, the Bank’s governor, noted that this move would better regulate prices, benefiting Tanzanians from all works of life.

The move, according to the report by the Citizen, also falls in line with the country’s goal of regional cooperation as it is set to put Tanzania on the same playing field as other East African countries.

The bank elaborated on how the new policy style would work, noting that a key interest rate called the Central Bank Rate (CBR) would be initiated, and the bank would either loosen or tighten its grip on the economy, depending on what side of the CBR the interest rate is at.

“Lowering the CBR could stimulate borrowing and spending while raising it could slow down inflation,” the Citizen’s report states. “The CBR will guide banks, but they will still set their own interest rates, based on market forces,” the report adds.

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