BANK OF TANZANIA OFFICIAL ALLAYS FEARS ABOUT LIQUIDITY SQUEEZE

Cash squeeze in circulation should be nothing to worry much about as it is part of measures undertaken to control the economy, a senior Central Bank official has said.

Mr Paul Maganga, the Domestic Market Associate Director with the Central Bank told the 'Daily News' on Wednesday that scarcity of money currently being experienced was part of a tight monetary policy taken to help in monitoring and control money in the circulation.

He said the recent government directive for ministries, local governments and public corporations to transfer their money to the Central Bank was among the measures which had contributed to the scarcity of money in the circulation.

About 500bn/- is the sum of money thought to have been held by the public corporations, ministries and local governments in commercial banks. The directive on the other hand has helped the Bank of Tanzania (BoT) to monitor and control money in circulation, he said.

Instead the public entities should maintain an operational account at their preferred commercial bank with a minimum of balance to cater for their monthly operational expenses as per their monthly cash flow projections.

Mr Maganga said also that the tight liquidity in the circulation is contributed by most corporate engaged in paying annual taxes last month, thus cutting spending of funds that could have been directed to investments. Similarly, the present situation of dry money in the market is explained by the less government expenditure for both recurrent and development.

According to CRDB's Financial Market Highlights liquidity was tight in the market on Monday as interbank volume fell by 67 per cent to 18bn/-, while borrowing rates were up by 50 basis points to a weighted average of 14.22 per cent and a high of 16 per cent. Liquidity is expected to remain tight in the market with borrowing rates holding up at current high levels.

Daily News