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UPDATE 1-Tanzania cuts commercial bank reserve ratio to boost lending
March 22, 2017 / 2:27 PM / 8 months ago

UPDATE 1-Tanzania cuts commercial bank reserve ratio to boost lending

(adds details, background)

By Fumbuka Ng‘wanakilala

DAR ES SALAAM, March 22 (Reuters) - Tanzania’s central bank has cut the minimum reserve ratio required of commercial lenders to 8 percent from 10 percent, the latest monetary easing measure aimed at reducing borrowing costs and stimulating economic growth.

The change to the statutory minimum reserve requirement (SMR) will take effect on April 20 and follows the bank’s decision two weeks ago to slash its discount rate to 12 percent from 16 percent.

Bank of Tanzania Governor Benno Ndulu announced the measure in a circular to commercial banks dated March 21 and seen by Reuters on Wednesday. It will apply to both domestic and foreign currency deposit liabilities.

The International Monetary Fund warned earlier this year that the slow pace of credit growth posed a risk to Tanzania’s growth forecast of around 7 percent in the fiscal year 2016/17 (July-June). The fund advised Tanzania to ease monetary policy and boost public spending on infrastructure projects.

The economy has seen a steep decline in lending by commercial banks to key sectors including agriculture, manufacturing, transport and construction.

“The reduction of the reserve ratio coupled with the recent cut in the discount rate by the central bank are expected to help ease the ongoing liquidity tightness and encourage banks to lend more money to the private sector,” said a trader at a bank in the commercial capital Dar es Salaam.

Lending to the private sector grew by an anaemic 2.5 percent in 2016 after expanding 26.8 percent a year earlier, according to central bank data. Lending fell dramatically after a spike in non-performing loans. (Editing by Aaron Maasho and Richard Lough)

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