Tanzania Leads EAC with Lowest Policy Rate: A Boost for Borrowers

DAR ES SALAAM: TANZANIA has cemented its position as the East African Community’s cheapest place to borrow, giving businesses and investors a rare pocket of monetary stability in a region still grappling with high financing costs. The Bank of Tanzania (BoT) held its benchmark rate at 5.75 per cent for the first quarter of 2026, marking the third consecutive quarter the rate has been maintained at that level. The decision extends a cautious easing cycle that began in July 2025, when the central bank cut the rate from 6.00 per cent amid easing inflationary pressures. Inflation slowed to 3.4 per cent in November, near the lower end of the BoT’s 3–5 per cent target range, giving policymakers room to keep monetary conditions supportive of growth. The rate decision also comes against a backdrop of currency stability and stronger external buffers. The Tanzanian shilling posted a modest 0.8 per cent appreciation against the US dollar by the end of the fourth quarter of 2025, while foreign-exchange reserves rose above 6.3 billion US dollars, equivalent to 4.9 months of import cover, comfortably above the statutory minimum. Strong credit growth has underpinned domestic activity, with gross domestic product expanding by about 5.9 per cent in 2025, broadly in line with the government’s six per cent projection, supported by agriculture, mining and construction. Analysts say the sustained low policy rate signals that Tanzania is using monetary policy as a growth lever rather than a brake, encouraging bank lending to businesses and households, lowering financing costs for investment, housing and infrastructure, and supporting domestic demand without stoking inflation. The stance also gives Tanzania a competitive edge in attracting capital, making it more appealing for foreign direct investment, portfolio flows and regional treasury operations compared with higher-cost peers. Across East Africa, central banks are moving at different speeds as they weigh fragile recoveries against lingering price and currency pressures. Kenya, the region’s largest economy, has eased policy more aggressively but still keeps borrowing costs well above Tanzania’s. ALSO READ: BoT holds policy rate at 5.75pc The Central Bank of Kenya cut its rate to 9.00 per cent in December, the ninth consecutive reduction, aiming to spur lending after inflation steadied around 4.5 per cent. Growth is projected near 5 per cent over the next two years, though a widening fiscal deficit, now estimated at 5.9 per cent of GDP, has limited the room for deeper cuts. In Uganda, authorities have taken a more cautious approach. The Bank of Uganda has held its rate at 9.75 per cent for five straight meetings, citing the need to anchor expectations ahead of January 2026 elections. Core inflation has eased to 3.4 per cent, and officials recently lifted their growth forecast to as high as 7 per cent for the 2025/26 fiscal year. Rwanda raised rates last year to tame rising prices and has since kept them at 6.75 per cent. Inflation reached 7.2 per cent in the third quarter, though the central bank expects it to moderate to about 5.8 per cent in 2026 as earlier tightening takes effect. The economy expanded 7.8 per cent in the second quarter, one of the fastest rates in the region. At the tougher end of the spectrum, Burundi continues to operate with lending rates near 12 per cent, reflecting chronic liquidity constraints, weak financial intermediation and persistent pressures on domestic financing, which have limited the central bank’s scope to ease policy. The Democratic Republic of Congo (DRC) cut its key rate to 15 per cent in January from 17.5 per cent after inflation fell sharply to 2.5 per cent, helped by a stronger currency. However, economic growth remains modest at around 2.6 per cent, heavily dependent on mining and vulnerable to commodity price swings. South Sudan faces the region’s starkest challenges, with a 13 per cent policy rate alongside inflation exceeding 90 per cent, driven by currency depreciation, conflict-related supply disruptions and heavy reliance on food imports, even as the government bets on a sharp rebound in growth once oil exports fully recover. Somalia, whose economy is largely dollarised, does not yet run a conventional interest-rate regime.