The Bank of Tanzania (BoT) has raised the central bank rate to 6 per cent from 5.5 per cent in a move aimed at curbing rising inflationary pressures in the East African country.

By adjusting the rates, a little higher, the central bank of Tanzania hopes to influence how much money flows through the economy since the policy rate signals banks how much cheaper or expensive it will get to loan money to them.

The Tanzania central bank Governor, Emmanuel Tutuba, said in the press statement that the increase was expected to facilitate economic growth in the medium term.

Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.

The lending rates of Tanzania's commercial banks averaged 15.39 per cent in January this year, down from 16.29 per cent a year ago.

Tanzania currently has the lowest central bank policy rate in East Africa, compared to Kenya (13%), Uganda (10%), and Rwanda (7.5%).

Bank of Tanzania expects the country’s economic conditions to be favorable this year.

Tanzania’s economy grew 5.1 per cent last year from 4.7 per cent a year before.

In the first quarter of 2024, growth is estimated to be around 5.1 per cent.

The gross domestic product (GDP) growth this year will be driven by public investment, particularly in infrastructure, as part of measures to facilitate private sector business and investment.

"Private sector investment also contributed to the estimated growth, because of the improving business environment in the country, as reflected by the high growth of credit to the private sector and increase in foreign direct investment," Tutuba told the business community on Thursday.

Growth of credit to the private sector averaged 17 per cent in the first quarter of 2024, same as in the preceding quarter.

According to the Tanzania Central Bank, credit was mostly directed to agriculture, mining, transport, and manufacturing activities.

Tutuba said demand for credit will likely remain strong, underpinned by improving business and investment conditions, while average non-performing loans in the banking sector are seen below the 5 per cent benchmark.

Inflation averaged 3 per cent in the first quarter of 2024 in line with the country's target of not more than 5 per cent.

Foreign reserves topped $5.3 billion at the end of last month, equivalent to 4.4 months of projected imports.

The Tanzanian shilling depreciated by 1.8 per cent in the quarter ending March 2024 compared to 1.6 per cent in the preceding quarter.

"The exchange rate depreciated relatively faster, driven by a seasonal decrease in foreign exchange flows, as well as global economic conditions," the governor noted.

Tutuba said ongoing measures to increase the supply of US dollars in the market and reduce demand for foreign currency are expected "to stabilize the situation in the near future" and reduce the challenge of shortages of foreign exchange in the economy.