Work on interest rate migration still underway

BoT’s Director of Banking Supervision Kened Nyoni told the `Daily News' that they were still addressing key issues before announcing the exact date for adopting interest rate based monetary policy framework. He said they were sorting out some issues before making an interbank cash market a real market.

“This is whereby all banks will be in a position to see who is offering liquidity and who is in need of liquidity with respective terms clear as what is currently happening in Reuters for interbank foreign exchange market,” Mr Nyoni said.

“There is commitment to adopt it in the near future possibly towards the end of 2017 but not before the end of 2018.” Once these interventions including capacity building on forward looking framework— Forecasting and Policy Analysis System (FPAS) are set then the interest rate based framework will be adopted. The Bank [BoT] is progressing well on developing FPAS for Tanzania, Mr Nyoni said.

International Monetary Fund (IMF) said in latest letter of intent that the intention to move to an interest ratebased monetary framework was welcomed.

The IMF, however, suggested acceleration on the key reforms to put in place, such as a forward-looking monetary policy framework and modernize monetary operations. Key issues include integrating the forecasting and policy analysis capacity— which is being developed with Fund technical assistance— into the monetary policy formulation process.

Others are reforms that improve the functioning of domestic financial markets; expanding the range of eligible collateral used in the BoT’s operations; and improving coordination with fiscal policy. The central bank, once interest rate policy is in place, will issue a rate which acts as the benchmark for prices of various money market products in the economy.

All players will use BoT’s rate to peg prices of their products. Economists have it that although reserve money works well, its effectiveness is impeded when the economy expands, making interest rate targeting more preferable.

BoT's preparations for migrating from reserve money to interest rate target are dated four years ago in 2013. However its implementation proved to be a tough nut to crack.

SOURCE: DAILY NEWS

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