Bank of Tanzania left its benchmark interest rate unchanged at 5.75% for the second quarter of 2026, signalling caution as policymakers balance a resilient domestic economy against rising global uncertainties linked to geopolitical tensions in the Middle East.
The decision, announced by Emmanuel M. Tutuba today after the latest meeting of the Monetary Policy Committee, highlights a measured policy stance aimed at maintaining price stability while supporting growth.
In a move to improve the effectiveness of monetary policy, the central bank narrowed the interest rate corridor to 150 basis points from 200.
This places the 7-day interbank rate within a target band of 4.25% to 7.25%, a step expected to enhance control over short-term liquidity conditions and strengthen policy transmission.
The decision comes amid growing uncertainty in the global economy. While growth is projected to remain resilient in 2026, escalating tensions in the Middle East have disrupted supply chains and driven a sharp rise in commodity prices.
Crude oil prices have climbed above $100 per barrel, significantly higher than earlier projections, raising concerns over inflation and external stability.
Such developments are increasing pressure on central banks globally, with the possibility of tighter policy responses if energy-related inflation persists.
For Tanzania, the risks are largely external, particularly through higher import costs and potential trade disruptions.
Despite these challenges, the domestic economy has remained robust. Growth in the first quarter of 2026 is estimated at 6.2% in Mainland Tanzania and 6.7% in Zanzibar, supported by strong performance in construction, agriculture, tourism, and financial services.
The outlook for the second quarter remains broadly stable, with growth projected at slightly above 6%.
However, the central bank noted that a prolonged or intensifying conflict in the Middle East could weaken this outlook, especially if rising fuel and transportation costs begin to affect production and consumption more significantly.
Inflation has remained within the target range of 3% to 5%. It averaged 3.3% in Mainland Tanzania and 4.5% in Zanzibar during the first quarter, supported by stable food prices and exchange rate stability.
The relatively muted impact of rising global energy prices suggests that domestic conditions have so far cushioned immediate inflationary pressures.
The banking sector continues to show resilience. Liquidity remains strong and capital buffers are adequate, while credit to the private sector grew by 22.8%, reflecting sustained demand from businesses and households.
Asset quality has improved further, with the non-performing loans ratio declining to 2.9%, well below the 5% threshold.
Tanzania’s external sector has also strengthened. The current account deficit narrowed to 2.2% of GDP in the year ending March 2026, compared with 2.4% a year earlier, driven by stronger exports, particularly gold, agricultural products, and tourism services.
Zanzibar continued to record a current account surplus, supported by tourism receipts.
Foreign exchange reserves remained above $6.2 billion, sufficient to cover 4.8 months of imports and in line with regional benchmarks.
The exchange rate has remained broadly stable, supported by steady inflows and moderate import demand.
Fiscal performance has complemented monetary policy, with tax revenues exceeding targets due to improved compliance and expanding economic activity.
Government spending has remained aligned with available resources, helping sustain overall macroeconomic stability.
Even with these positive indicators, policymakers remain cautious as global risks persist. The central bank is expected to continue monitoring developments in the Middle East and their potential spillover effects on inflation, trade, and growth.
The next policy meeting is scheduled for July 2026, when the outlook will be reassessed in light of evolving domestic and global conditions.
