Tanzania has cut its benchmark lending rate from 7 percent to 5 percent, Bank of Tanzania Governor Florens Luoga said Tuesday, with the goal of providing more room for banks to borrow at a lower cost and lend out at lower rates. The policy change, which came into effect on May 12, is part of a broader move to increase liquidity in the economy and boost growth amid the COVID-19 pandemic.

Several countries across the East African Community have installed full or partial lockdown measures while others, such as Tanzania, have placed restrictions on social movements to avoid a grave impact from the pandemic currently playing out in other continents. 

Though helping to limit the spread of the virus, the measures have taken a toll on regional economies. Particularly, the outbreak threatens the highly significant tourism industry in Tanzania with about 477,000 people at risk of losing their jobs, while sectoral revenue is expected to shrink by 77 percent if the number of infections continues to spike.

In its latest World Economic Outlook, the International Monetary Fund pegs Tanzania’s gross domestic product growth rate for 2020 at two percent, down from 6.3 percent in 2019. The new projection released April represents a sharp change from March when the Fund reported that the economy had rebounded to an estimated annual growth rate of six percent in 2020, up from 4 percent projected early last year.

BoT also lowered the statutory minimum reserves (SMR) from 7 percent to 6 percent, effective from June 8 and imposed haircuts on government securities – from 10 percent to 5 percent for treasury bills and 40 percent to 20 percent for treasury bonds. “The measure will increase the ability of banks to borrow from the bank of Tanzania with less collateral than before,” the regulator said, offering protection for lenders amid the crisis.

More so, the apex bank approved an increase in mobile money transaction limits, to “encourage customers to use digital payment platforms for transactions,” thereby reducing congestion in banking premises, the BoT statement said. As of Thursday, Tanzania had 509 coronavirus cases with 183 recoveries and 21 deaths.

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