Tanzania Adopts Kenyan Tactic: Hikes Lending Rate to Combat Inflation
The decision by the Central Bank of Kenya (CBK) to increase the base lending rate from 12.5 percent to 13 percent in February and maintain it at that level appears to have established a model for other nations in East Africa to follow.
On Wednesday, Governor Kamau Thugge of the Central Bank of Kenya acknowledged that the policy choice has yielded favorable outcomes, such as curbing inflation and managing exchange rate challenges.
Tanzania appears to have followed Kenya’s lead in addressing its inflation problem, which had negatively impacted the country’s economic prospects.
On April 4th, Tanzania increased its primary lending rate from 5.5 percent to 6 percent, as declared by the Governor of the Tanzanian Central Bank.
“The decision is based on the macroeconomic forecast made in March which requires an increase in the scope of monetary policy actions to contain the lingering inflationary pressures,” stated the governor.
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Nonetheless, as stated by Professor XN Inaki, an economist interviewed by Gossipa2z.com, Tanzania’s choice to increase its lending rate to 6 percent might yield a somewhat lesser effect in comparison to Kenya.
“Tanzania is a different economy- we can wait and see, but Tanzania’s hike was much lower than Kenya’s and the impact is likely to be less,” stated the economist.
He suggests that in addition to increasing the lending rate to combat inflation, nations have the option to manage it by importing food items or expanding non-irrigated agricultural production.
In the meantime, Uganda has likewise embraced a comparable approach to tackle its distinctive challenges.
On March 6th, Uganda increased its primary interest rate to 10%, aiming to alleviate the adverse impact of a significant currency depreciation on the nation’s economy.
“The depreciation of the shilling exchange rate has triggered the need for monetary policy to be tightened,” the Central Bank of Uganda’s deputy governor noted.
The decline in the Ugandan Shilling was attributed by the bank governor to offshore investors withdrawing funds from Uganda in pursuit of better returns elsewhere. This trend compelled the country to increase its bank rates.
Tanzania Adopts Kenyan Tactic: Hikes Lending Rate to Combat Inflation