BoT sees improving economic indicators, resilient currency, and investor confidence as key factors supporting decision
The decision was announced on Wednesday by Bank of Tanzania Governor Emmanuel Tutuba, following a meeting of the Monetary Policy Committee (MPC) held on 2 July.
The rate cut, the second since the country adopted an interest-rate-based monetary policy framework in January 2024, reflects the MPC’s confidence in the inflation outlook and strength of the domestic economy.
"The Bank will implement monetary policy to ensure the 7-day interbank rate remains within the CBR corridor of 3.75 to 7.75 percent," said Mr Tutuba.
The committee noted that inflation has remained within the government’s target range of 3 to 5 percent and is projected to remain stable in the coming months. Headline inflation in Mainland Tanzania averaged 3.2 percent in the second quarter of 2025, while Zanzibar saw inflation ease to 4.2 percent in May from 5.3 percent a year earlier.
The central bank attributes the inflation performance to prudent monetary and fiscal policies, exchange rate stability, and improved food supply driven by the onset of the harvest season.
According to Mr. Tutuba, Tanzania’s economic performance has shown resilience in the face of global headwinds as the economy expanded by 5.8 percent in the first quarter of 2025 and 5.5 percent in the second, driven by growth in agriculture, construction, and financial services.
The Bank projects growth to accelerate to 6.0 percent in the third quarter and 6.9 percent in the fourth, supported by continued infrastructure investments and preparations for major sporting events including CHAN and AFCON tournaments.
Private sector activity is also gaining momentum, bolstered by an improving business climate and rising investor confidence. A recent CEOs’ Economic Perception Survey conducted in May 2025 highlighted positive business sentiment, while Fitch Ratings affirmed Tanzania’s B+ credit rating with a stable outlook in June.
Strong external sector, stable shilling
The MPC observed that the external sector continued to strengthen. Tanzania’s current account deficit narrowed to USD 797.1 million in the second quarter of 2025, down from USD 872.1 million a year earlier.
For the full fiscal year, the deficit is expected at 2.6 percent of GDP, an improvement from 3.7 percent in 2023/24.
Zanzibar recorded a current account surplus of USD 611.1 million for 2024/25, up from USD 428.5 million the previous year.
The performance was underpinned by strong tourism receipts, robust exports of gold, manufactured goods, and cash crops such as tobacco.
Foreign exchange reserves stood at approximately USD 6 billion by the end of June, covering 4.8 months of projected imports, the highest level in recent years.
This, alongside policy reforms and increased domestic gold purchases, helped to stabilise the Tanzanian shilling, which depreciated only 0.2 percent against the US dollar in the year to June 2025.
By contrast, the local currency had weakened by 12.5 percent over the same period in 2024.
Credit expansion and financial sector stability
The financial sector continued to perform strongly. Private sector credit grew by 16.7 percent in the second quarter, reflecting easing financial conditions and rising demand for capital.
The expansion of agent banking and digital services also contributed to higher lending and deposit mobilisation.
The banking sector remains liquid and well-capitalised. Non-performing loans declined to 3.4 percent in May, well below the regulatory threshold of 5 percent, suggesting stronger credit risk management.
Broad money supply (M3) grew at an annual average of 19.1 percent in Q2 2025, up from 15.4 percent in the previous quarter, reflecting the expanding needs of the economy.
Fiscal discipline supports monetary policy
The MPC praised the government’s continued fiscal discipline. Revenue collection remained on track, supported by improved tax administration and compliance.
Public spending was aligned with available resources, and public debt remained sustainable, with a moderate risk of distress.
“The ongoing implementation of fiscal consolidation and structural reforms will help to sustain growth and reinforce the Bank’s efforts to maintain low and stable inflation,” Mr Tutuba said.
Global context: mixed signals
Globally, economic and trade uncertainty continues to pose risks. The MPC cited ongoing geopolitical tensions and rising tariffs as potential threats to global growth in 2025.
However, inflation pressures have eased in many economies due to earlier interest rate hikes and moderating food and energy prices.
Meanwhile, crude oil prices fell to USD 65.92 per barrel from USD 74.35, reflecting subdued demand and higher supply from OPEC+ countries.
“Most central banks are expected to proceed cautiously, balancing the risks of inflation against the need to support economic recovery,” the MPC noted in its statement.
The outlook
The Bank of Tanzania signalled a continued commitment to its current monetary stance, aimed at supporting credit expansion while maintaining price stability.
The committee concluded that the current balance of risks supports a slightly more accommodative policy position. However, it stressed that future policy decisions will remain data-driven and responsive to both domestic developments and global conditions.
With a stable macroeconomic environment, improving growth prospects, and rising investor confidence, the central bank appears poised to support Tanzania’s ongoing economic recovery while guarding against potential shocks.