By Business Insider Reporter
In a move aimed at reinforcing Tanzania’s economic momentum, the Bank of Tanzania (BoT) – through its Monetary Policy Committee (MPC) – has reduced the Central Bank Rate (CBR) by 25 basis points, lowering it from 6% to 5.75%.
The decision, announced after the MPC’s latest meeting on July 2, 2025, reflects the central bank’s confidence in the country’s macroeconomic outlook. Inflation remains within the targeted range, and key indicators point to a strengthening domestic economy.
The MPC, which is responsible for formulating and overseeing the implementation of monetary policy, plays a critical role in guiding the nation toward its macroeconomic goals – chiefly price stability and sustainable economic growth.
By cutting the benchmark rate, the BoT aims to reduce borrowing costs, stimulate credit expansion, and support private sector investment – key levers for promoting inclusive development.
The MPC is scheduled to meet again on October 1, 2025, with the next policy rate decision expected the following day.
Facilitating inclusive growth
By reducing the benchmark rate, the BoT aims to make borrowing more affordable, thereby encouraging credit expansion, boosting investment, and supporting overall economic resilience.
“The reduction in the policy rate reflects our commitment to maintaining a supportive monetary environment that facilitates inclusive growth and helps drive national development,” the BoT stated in its policy update.
Economists view the move as a signal of confidence in the country’s economic trajectory, with the BoT expected to closely monitor evolving conditions both locally and globally as it balances growth and price stability.
The new rate takes immediate effect and is expected to influence short-term lending rates across the financial sector, potentially easing access to finance for businesses and households alike.
According to the official Monetary Policy Committee Statement, this move reflects the MPC’s confidence in the inflation outlook.
Inflation has remained well within the target band of 3 to 5% throughout the year and is projected to remain stable in the near term.
What it means
The MPC attributed this stability to prudent fiscal and monetary policies, the onset of the harvest season, and continued exchange rate stability.
While global risks persist, including geopolitical tensions and rising tariffs, recent international agreements appear to be moderating those risks.
For ordinary Tanzanians, this policy decision is expected to lead to more affordable credit, especially through reduced borrowing costs from commercial banks.
Households seeking loans for housing, education, or small businesses may benefit from lower interest rates, improving access to credit. In turn, this can help ease the cost of living and encourage personal investment and consumption.
The private sector is also set to benefit from this monetary easing. Businesses – particularly in agriculture, construction, logistics, and manufacturing – will be able to access financing at lower rates, potentially boosting production and job creation.
The MPC noted a steady rise in private sector activity, underpinned by an improving business environment.
Notably, private sector credit grew by 16.7% in the second quarter of 2025, reflecting strong demand for investment financing and the availability of credit under more favorable conditions.
Financial sector stability, GDP growth momentum
In the financial sector, the MPC highlighted that banks remain profitable, liquid, and well-capitalised. The ratio of non-performing loans declined to 3.4% in May 2025, well below the prudential threshold of 5%, which the Committee said is a clear indicator of improved credit quality and risk management.
Continued expansion in agent banking networks and digital financial platforms has also enhanced access to financial services across the country, strengthening financial inclusion efforts.
On a macroeconomic level, the decision is aimed at sustaining the country’s growth momentum. The Tanzanian economy demonstrated strong resilience in the first half of 2025, with GDP growth estimated at 5.8% in the first quarter and 5.5% in the second quarter.
The MPC projects GDP growth to accelerate to 6% in the third quarter and reach 6.9% by the fourth quarter of 2025. This growth is largely attributed to significant infrastructure investments – including railways, roads, airports, and sports facilities in preparation for CHAN and AFCON tournaments – alongside robust performance in agriculture, mining, and financial services.
In its statement, the MPC emphasized that the country’s diversified economic base and consistent implementation of growth-enhancing reforms have helped shield the economy from external shocks. Investor confidence remains high, as demonstrated by Fitch Ratings affirming Tanzania’s credit rating at B+ with a stable outlook in June 2025.
The external sector, fiscal performance
The MPC also reported favorable developments in the external sector. The current account deficit narrowed significantly to US$797.1 million in the second quarter, from US$872.1 million in the same period last year.
For the full fiscal year 2024/25, the deficit is projected at 2.6% of GDP – an improvement from 3.7% the year before – driven by strong export performance in gold, tourism, cash crops, and manufactured goods.
Foreign exchange reserves rose to about US$ 6 billion by the end of June, sufficient to cover 4.8 months of projected imports.
On the fiscal front, both Mainland Tanzania and Zanzibar showed improved performance, with revenue collections meeting targets due to better tax administration and compliance.
Expenditure remained aligned with available resources, supporting the government’s fiscal consolidation efforts. Public debt levels remained sustainable, with moderate risk of distress, according to the Committee.
Exchange rate stability
The Tanzanian shilling remained stable during the review period, depreciating by only 0.2 percent against the US dollar in the year ending June 2025 – significantly lower than the 12.5 percent depreciation recorded in the previous year.
This exchange rate stability was largely supported by increased foreign exchange earnings from tourism and exports, as well as strengthened monetary policy and regulations requiring the use of shillings in domestic transactions.
BoT noted in the statement that the MPC’s decision to reduce the policy rate is a strategic move aimed at supporting sustainable economic growth, enhancing access to credit, stabilizing inflation, and strengthening the foundation for long-term national development.
Governor Emmanuel Tutuba (pictured above) reiterated the central bank’s commitment to ensuring monetary policy supports the country’s development goals. “The ongoing implementation of fiscal consolidation and reforms will facilitate sustainable growth and complement monetary policy in ensuring low and stable inflation,” Governor Tutuba stated in the presser.
