POWER TARIFF HIKE, FOOD INSECURITY DOG ANTI-INFLATION DRIVE

Tanzania Finance Minister Saada Mkuya Salum

Power tariff hike and food shortage have remained major factors that drive up inflation despite several measures being taken by the Bank of Tanzania (BoT) to reverse the trend.

The concern was raised by the BoT in its Monetary Policy Statement for the 2013/14 second quarter. During this period, inflation was contained to single digit levels and remained at the same level for the whole period.

“Upward risks remain, mainly associated with the increase in power tariff that became effective in January, this year, as well as possible shortage in food supply in the East African Community (EAC) and Southern African Development Community (SADC) regions,” stated the report.

Early January, this year, the government hiked power tariffs to an average of 40 per cent for domestic users. However, with the tight monetary policy the BoT managed to maintain a single digit at 6.5 per cent in May and projected to reach 5 per cent this month.

The Finance Minister Ms Saada Mkuya said while moving the 2014/15 budget in the National Assembly in Dodoma last week that the BoT would maintain a tight monetary policy, to be complemented by stable oil prices and good weather. “These should lessen the impact of second round effect of the increase in power tariff,” she said.

In addition, the Bank will monitor inflation expectations through market surveys with the view to taking additional measures when need arises.

Ms Mkuya said the decline in inflation was mainly due to strong macro-economic policy, good climate conditions, which led to increase in food production, timely provision of farm inputs, subsidies, and availability of electricity.

During the first half of 2013/14, the Bank continued to sterilize excess liquidity from the economy so as to achieve appropriate liquidity levels and contain inflationary expectations.

Significant achievement was recorded in monetary aggregates, with money supply growing at 10 per cent, slightly below the programme target of 10.8 per cent; while the growth of credit to the private sector was 15.3 per cent in line with the programme target of 15.2 per cent.

The development was a result of several policy measures which have been implemented, including tightening of monetary policy and fiscal consolidation; as well as softening of supply side shocks, which is partly mirrored in the food inflation trend.