D’Day as Tanzania Central Bank Releases Tsh. 500 Billion Into Circulation…



By TZ Business News Staff


It is ‘raining cash’ in Tanzanian banks on this day of our Lord, April 20, 2017. The downward revision of the Central Bank Statutory Minimum Reserves (SMR) from 10% down to 8% goes into effect on this day with some Tsh. 500 billion expected to be released into circulation.

There are currently 38 commercial banks in Tanzania where the amount to be released will depend on the reserves of individual banks. However, the largest banks in the country with a reasonable number of branches across the country include CRDB bank, NMB Bank and NBC Bank. Both banks have loan departments.

The Central Bank Governor  Benno Ndulu recently said the 2% difference between the old 10% SMR and the new rate at 8% would release somewhere between Tsh.400 – 500 Billion into the circulation.

The SMR downward revision was announced  three weeks after a 25% reduction of  the Discount Rate to ease commercial banks access to finance as a deliberate Money Supply measure to spur lending to the private sector  against a backdrop of a sluggish money supply growth in 2016.

“Monetary aggregates sustained slow growth of 2.9 per cent in the year ending December 2016 as against 18.8 per cent growth recorded in the corresponding period in 2015,” the Bank of Tanzania reported recently. “ The slow growth is attributed to decline in net foreign assets of the banking system and net credit to the government.

“Also credit to the private sector grew by only 7.2 per cent in the year ending December 2016, compared with 24.8% in the year ending December 2015. This was associated with banks’ elevated cautiousness in lending in the face of increase in non-performing loans (NPLs) and low foreign budgetary inflows”, BoT said.

The revision is the second step the central bank  has taken within Q1 to boost liquidity in commercial banks. On Monday, March 6, 2017, BoT issued a circular to commercial banks informing them it had reduced the discount rate from 16% down to 12% to help spur lending and boost economic growth.  The circular marked the first time BoT had lowered borrowing costs since 2013.

The central bank also said the revised discount rate took into account the prevailing 91 and 182-day weighted average yields and the monetary policy stance geared towards sustaining price stability, adding that the drop would also be used to discount Treasury securities.

The SMR requirements are legal balances which banks are required to keep with the Bank of Tanzania, determined as a percentage of their total deposit liabilities and funds borrowed from the general public.

SMR requirement serves as a safeguard against a sudden and inordinate demand for withdrawals (as in a run on a bank), and as a control mechanism for injecting cash (liquidity) into, or withdrawing it from, an economy. Read our earlier report here.