East African Business Week

DAR ES SALAAM, TANZANIA - Overnight Inter-bank lending rates have reached the highest level in three years, pushed by tight money measures geared to salvage the Tanzania shilling and cut inflation rate from further sliding.
According to inter-bank data, the rates closed the week trading at a weighted average of 18.73 % with the highest rate of 20 %.
Tanzania Securities Money Market analyst Joel J. Nkya said last week the situation has been forcing banks to raise deposit rates to find alternative sources of liquidity. "These in turn ought to raise lending rates," Nkya said.
Given the tight money stance to rescue the rapidly depreciating shilling which only last week showed signs of stabilizing at 1,700 a US dollar, and capping inflation from reaching 20 %, the money markets have started to feel the pinch as cost of borrowing is going up. Inflation hit 17.8 % in October 2011. Prior to this the Tshilling had depreciated to over 1,800 a dollar at the bureaux de change in Dar es Salaam.
Fortnight ago the Tanzania Banking Association (TBA) said banks were considering reviewing lending rates to accommodate the soaring inflation rates that would definitely push up the cost of loans.
The TBA Chairperson Laurence Mafuru, commenting on the effects of soaring inflation on lending services, said: "Lending is one of the commercial banks' core businesses and they have to look at margins with good return."
However, CRDB Bank Managing Director Dr Charles Kimei said his bank is not considering raising lending rate as the bank's interest are calculated taking regard projected  inflation and not current rates.
"We peg our interest rate looking at expected inflation which we anticipate will be in the single digit region, this time next year," Dr Kimei said during the CRDB's investors' forum.
The CRDB Chief Executive said, however, banks may increase deposits rates should they want to fatten their deposits portfolio especial new comers in the market.
First National Bank (FNB), new entrant, has announced challenging fixed deposit interest rates of one month at 4 %, three-month 7 %, six month 8 % and 12 month 10 %. While, premium lending rate is 17 %.
According to the Bank of Tanzania (BoT), commercial banks' lending and deposits rates exhibited mixed trends in September 2011, with the former rising consistent with inflation while the later edging downwards.
The overall lending rate rose to 15.79 % in August compared with 15.71 % in July 2011, while it was 14.35 % last August. Similar pattern was observed in one-year lending rate which rose to 15.98 % from 14.83 % in July and 14.37 % in August last year.
Conversely, overall time deposits rate fell to 6.30 % in August from 6.42 % recorded in the preceding month. The 12-months deposits rate fell to 7.96 % in August 2011 from 8.03 % in July this year.
While Tanzania is pondering to hike lending rates, Kenya has raised them to 24 %, pushing up the effective cost of loans to nearly 27 % after factoring in risk premiums that the lenders add to their base lending rates.