Dar es Salaam. The Bank of Tanzania (BoT) does not intend to cap loan interest rates, as the country now practices free monetary policy, Finance and Planning Minister Dr Mwigulu Nchemba said on Sunday. .
Mwigulu Nchemba was speaking in Dodoma where he presented the success of his ministry during the last 60 years of independence, where he said that the regulation of interest rates amounts to a setback on the gains made in the financial sector at the era of pre-economic reforms that liberalized the banking sector in the early 1990s.
He said the government does not want to go back to the era of rate fixing because it has a free economy.
âThe BoT and the Ministry of Finance don’t want to go back to the era of rate fixing, like we did with the exchange rate. The market will determine the rates, âhe added;
“What we’re trying to do is have the BoT put in place an accommodating policy.”
Dr Nchemba added that the banking sector is dominated by the private sector and it is not wise for the government to control the sector.
The high interest rates have sparked a wide debate in parliament, with some lawmakers questioning whether recent central bank tax measures have improved liquidity and reduced the cost of lending.
The debate was revived last week when Vunjo MP Charles Kimei pointed out in parliament that “the right monetary policy measures” had not produced the desired results, namely lower interest rates.
In July, the BoT introduced some policy measures that established a solid framework for increasing liquidity and reducing the cost of lending to the private sector.
The central bank also said it would introduce a special lending fund of 1,000 billion shillings for banks and other financial institutions to access money for loans to the private sector.
The central bank also reduced the amount to be reserved for the BoT, equivalent to the amount of loans granted to agriculture, in order to increase the financing of agriculture at a lower interest rate.
However, Dr Kimei, who is the former CEO of CRDB Bank, said that “banks have just increased their profitability for the benefit of their shareholders instead of relieving borrowers”.
In recent months, commercial banks have announced a cut in their lending rates, especially on personal loans. For example, in June of last year (2020), the CRDB Bank reduced the interest rates on loans to workers to 14%.
Previously, the bank had, on May 11, 2018, reduced its lending rate from 22 to 17%. A few days later, he lowered the personal loan rate to 16% – and, finally, lowered it again to 14%.